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My bank doesn’t understand small business

If you’re a small business owner you may have heard this one before. You may have even said it once or twice!

A few weeks ago we workshopped a case with National Bank where the business owner was looking for a loan to ‘tidy up a few bills’ and to fund a little expansion plan she had in mind but the bank weren’t so keen. It was hard to understand because the business was able to show a nice upward trend in sales and profitability over the last few years. That’s a pretty good story against the backdrop of an economic recession.

But digging a little deeper into the financial accounts highlighted some issues which made the bank less enthusiastic

  • stock levels had doubled and so had the length of time it took to sell her goods
  • the time taken to pay her suppliers had doubled and it was taking longer for her to collect invoices she was owed as well
  • Solvency was getting worse

From a bank’s perspective a worthy borrower is not only profitable but also has sufficient cash flow to pay its bills on time (one of which and usually the biggest will be a mortgage to the bank). In this example the bank can see plenty of profit but poor cash flow and throwing money into expansion and to pay suppliers wouldn’t really do anything to solve that problem. In fact by increasing expenses it could make the problem even worse! Why would a bank support that?

In this case the bank did actually come to the party. But how?

Basically the owners initial proposal had missed the mark by talking about how the business would generate increased profit and how wonderful that would be. But it failed to talk about the cash flow problem and how that was going to be addressed.

The new proposal included using a daily deal site to move the excess stock and get some cash in the door. A system was set up to give a discount against future purchases for customers who paid within a short timeframe. A payment plan was worked out with the two large customers who were taking longer to pay. And in conjunction with the accountant some realistic numbers to support the plan were put together. It worked.

Lessons learned?

Keep an eye on your accounts and get a good book keeping system like Xero so you can punch out regular reports and monitor this stuff.

A bank is a bill and like you, it wants to be paid on time. Remember profit is nice but cash pays bills.

Banks do actually understand business pretty well and do support self-employed people.  But they have very little time for owners who don’t understand their own business.

Resist the DIY approach to lending and get a broker to help you. A good broker will address any issues and tailor your application to suit.

Mortgage advice

Two interesting scenarios have come across our desks in the last 10 days and I hope they demonstrate to you why you would use the go2guys as your mortgage broker over the DIY approach.

In the first case we suggested to a couple that they tidy up a handful of things (especially their account conduct) before we  bothered to approach a bank on their behalf even though there were some real strengths to their position, not the least of which was a great level of income. The basic problem was they were clearly spending willy nilly and living outside their means. One of them was particularly forthright and decided to totally ignore our advice and approach their bank directly. I heard about the result through a friend of theirs (also a client). Yep, you guessed it – an embarrassing decline. What’s worse, we know that lender is a really good fit for them once they’d tidied themselves up. But they’ve blown their chances in the short term.

In the second case a prospective client had been recommended to us from a friend (again, the friend was a client) and after a quick look at the situation we determined that the current bank was not the right lender for what they wanted to do as they didn’t meet that bank’s lending criteria. Despite our advice the prospect felt stongly that their established 15 year banking relationship demonstrated loyalty and that that loyalty would ‘surely’ be rewarded with an approval. It wasn’t. .

I mention these examples not because I want to say ‘I told you so’ but because they’re a demonstration of the value we provide in helping you get the best mortgage available. We’re trying to give you as many aces as possible so that when your application lands on the credit manager’s desk they can see you’ve got a winning hand.

Although most people think the best mortgage deal comes down to interest rate and various loan features the reality is that the interest rate on offer doesn’t make a skerrick of difference if you can’t get the loan approved in the first place.

Talk to us – we deliver!

Buying a home ain’t easy!

So you decide to go house hunting and wouldn’t you know it, the first house you see is exactly what you want and at the right price. It’s a great deal and it’s staring you in the face. But you find yourself hesitating, unsure if you should make an offer or not. What’s holding you back man, it’s perfect?

Buying a house is never as easy as some people make it out to be. Especially if you’re a first home buyer but it can be just as traumatic for more seasoned punters. From our experience we know clients hesitate because they don’t have the right knowledge to make a decision. Here are 5 tips to make your search a bit easier.

Get finance pre-approval first

If you know how much the bank will lend you can narrow the search to properties that are within a specific price range, location or a specific type. Why waste time looking at properties that will never fit the bill?

Go hard, go fast

Once you’ve got your pre-approval you should hit the open home circuit, hard. In the first few weeks aim to look at as many properties as you can. This way you get a really good understanding of what a ‘good’ property looks like and what you’re prepared to pay for it. This is hard work but well worth it.

Find out why the owner is selling

Understanding why a house is being sold may help you negotiate a better purchase.  For example completing the purchase sooner in exchange for a price reduction may suit a seller who needs to relocate urgently for work.

Be inquisitive

If a property looks good but appears cheap you need to understand why – are there hidden problems with the building or maybe the seller under pressure from his bank?

Get a team of ‘experts’ to help you through the process

Every property transaction requires conveyancing which normally means you need a lawyer. If you need finance then you need a mortgage broker. A building inspector and valuer are useful people to know. There may be others as well but it really is important to have a tight group of people who you can help you through the process.

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