| Information Required by Potential Lenders – Part Three
When you approach your bank manager, other potential lender or equity partner, you firstly have to convince them that their money will be safe. Many proposals are put before them every day; they are in a position to choose those that are most convincing. This exercise is even more demanding than it may have been a decade ago or even a little over a year ago when lenders still were throwing money at borrowers. However, most financial institutions have suffered substantial losses (even if they have yet to all admit to the true degree in their balance sheets). Australian banks may not have been as exposed to the US “Sub-Prime” loans as banks elsewhere, but the flow-on effect of global financial instability has resulted in the Australian stock market halving in value and the Australian dollar losing about one quarter of its value. This is effecting the economy here. Much consumer debt has been incurred against a presumption of ever-increasing property values. Many smaller investors have been facing “margin calls as the value of the shares they purchased with their loans have fallen. We are now experiencing the banking equivalent of a “hangover”.
You want the bank, or institution's money, and they want to be sure that they will be going to get it back, and on time.
To get the loan you are going to have to convince them of that.
In December we looked at what should be in a covering letter such as some background information about your business and your experience. This month we will take a more detailed look at financial information you need to provide.
Cash Flow Projections
Most business management programs will include a facility to create a Cash Flow Budget – however the principles remain the same with a manual Cash Flow using something like the table (not shown on web).
If you already use cash flow projections as a matter of course in you financial management, you will have no problems here. If you do not, it is suggested that you seek the help of your accountant in preparing these projections, an abbreviated example of which is shown below. These days many accounting and Business Management programs will have a provision for creating a Cash Flow Budget on a computer.
|
The Annual Accounts
You can obtain the information you need from the accounts which you or your accountant have prepares for taxation purposes. As well as the “Balance Sheet” and the “Profit & Loss Statement” you may require a depreciation schedule.
List of creditors
List your creditors, showing amounts currently owing and monthly repayments.
Stock & Work-in-Progress
List you current stock and work-in-progress, showing realistic values.
Cash Book balance
The balance shown in your cashbook for the previous month is needed here.
Full Appraisal of Markets
The One Big Question in the lender's mind will be: how you are going to meet the loan installments. To answer it you need to know about your market and must present the facts in a concise, readable form. You should outline:
Your present Market
How it can be expanded
What your competition is doing
Detailed statements of current order book or sales projections
You should have your current order book or sales projections at hand and a comparison with the position in previous years should not be difficult. Where you could strike some difficulty is in estimating the position for the next two years. The OPE Industry is notoriously unpredictable. However, if you have made a proper appraisal of the markets (previous requirement) you should be able to provide an estimate your orders or sales for the next two years. A word of warning: be realistic; do not overestimate the probable position for the following two years. On the other hand do not be overly-cautious and underestimate the probable position as this could affect your chances of getting the loan.
|
