Most businesses at one time or another are faced with the need to seek finance for either the purchase or start of a business or continued operation or expansion.

When considering your finances, it is important to carefully work out how much money you may need to start and grow your business. A qualified accountant is an ideal person to help you with this.

Consider the following questions:

• Do you know how much it will cost to set up and run the business?
• Have you worked out profit and loss and cash flow budgets for your first 12 months of operation?
• If you need to borrow money, do you know where you can get it and how much it will cost to borrow?
• Can you meet the requirements of the lender for the money you need?
• Do you know what information the lender may ask for, and do you know how to prepare a loan application and a business plan?
• Have you discussed your plans with your business lender, accountant and solicitor?

Sources of finance

When seeking finance, make sure you are aware of the different types available on the market.

• Banks are the largest providers of business finance. Consider starting with your own bank. They can access your financial background and may already have security which may save you considerable establishment costs. In Queensland, many banks have developed specialist services to assist small business owners, including a range of advisory services, particularly in start-up situations. Others perform a helpful role in arranging and planning essential cash supply, controlling cash flow and investing surplus cash.
  
  
• Building societies and credit unions are a source of finance, although business lending is not usually their core business.
  
  
• Finance companies are active in business lending and can often structure a loan using a combination of long and short-term lending (for example, term loan and a lease) similar to a bank.
  
  
• Finance brokers can assist you, although you will normally need to pay them a fee to organise your finance. This needs to be considered in your budgeting, although often this fee can be offset by the savings (that is, interest rates and lender establishment costs) that you can make from accessing very competitive finance.

Preparing to approach a business lender

When approaching a lender, presume they know nothing about your business. Present your case clearly and effectively and convince them that the risk of lending to you is acceptable. Most importantly, be open and honest with the lender. In doing so, lenders can offer the experience, knowledge and solutions you may lack-if you don't possess the experience to present a good case to lenders, it is highly recommended you seek assistance from your business advisers.

When presenting a loan application, ensure you are familiar with what the lender may be looking for. The lender, for example, may want to be satisfied that:

• the purpose of the loan is within their lending criteria
• the owner has the necessary ability, skills and experience to operate the business in a profitable manner
• proposals for the use of the funds are realistic and can be achieved
• adequate security for the loan is available to ensure that money can be recovered if financial difficulties arise
• the borrower is able to meet the full loan repayments as well as interest and other charges.

To support the application, ensure you have:

• a business plan containing well researched evidence that a market exists for your product or service. It's important that you can show the bank the history of the business, your previous business experience, how the business's goals can be achieved, market research and contingency plans to compensate for market changes, and other external factors which could affect the business. Include in the business plan the amount of funds required, its purpose, preferred repayment terms, security offered for the loan, the basis for your estimated sales and evidence to confirm your major expense items
  
  
• detailed knowledge of the accounts and financial statements of the business to inspire confidence in the bank manager, including projected profitability and cash budget, details of existing borrowing, latest balance sheet or statement of business assets and liabilities, latest tax return and details of previous years' trading performance
  
  
• a statement of personal assets and liabilities clearly identifying which of these are in your name exclusively and which are in joint names
  
  
• details of security available to back the loan up if necessary, and details of any debt secured by way of mortgage, bill of sale or other means. Lenders are reluctant to take third party security from family members, especially if those family members are at an age where there would be difficulty replacing the asset during their working life
  
  
• a clearly defined repayment plan that allows for interest rate rises during the period of the loan.

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