Why can’t I get a business loan?

One of the main barriers for selling a business is whether the buyer is able to get the finance to purchase the business. Contrary to popular belief, banks want to lend you money & they want you to succeed. Because when you succeed, they succeed. 

So here are my Top 5 Tips on how you should prepare to borrow money from a bank or other lender to buy a business.

Banks & lenders in general, have 2 main criteria when they lend money; can the borrower pay me back & will the borrower pay me back. This month we’re going to focus on the “can”. That is, can you be successful in generating enough revenue to make the regular repayments on the money the bank will lend you? 

It’s very important to a lender to know that you understand the business that you are purchasing & the market in which you will be trading; both your competitors & your customers. 

Tip no. 1: Know your industry . . . thoroughly!

It sounds like a great idea to leave your stressful job & create the next-big-thing tech start-up. Or perhaps you are over living in an expensive capital city & dreaming of a sea/tree change where you can buy a local restaurant & build a fabulous business with friendly locals & happy relaxed holiday makers as customers. 

  • But do you know the industry, thoroughly? If you’re buying a cafe, do you have any idea how to make a great piccolo. How many sandwiches will you actually sell on a Thursday? What is BAS?
  • If the local hairdresser is more your speed & you’ve worked as a hairdresser for 10 years in a trendy inner city suburb, do you know how to do a wash & set for all the grey nomads settling in your town over the summer months? Do you know how to deal with suppliers? Where do I start with modernising the booking system?

Tip no. 2: Research, Research, Research!

If you want to buy a cafe, hairdresser, mechanic, bed & breakfast etc anywhere but particularly in a coastal or regional town you should research the area over at least 6-12 months. 

  • Get a sense of the traffic flow, the seasonal changes with tourists, are the locals loyal, will the peak season carry you through the off season.
  • Visit & stay in the area at least 3-4 times, use the local facilities, eat at the cafe, use the mechanic, stay at the B&B. Get a feel for the people, get a feel for the business. Does it feel successful?
  • Research the local council planning & environment proposals. Is there anything planned that would impact your proposed business either positively or negatively.

Tip no. 3: Know exactly what you are buying

  • Invest in a good lawyer & a good accountant to review all contracts & existing finance arrangements. 
  • Are the current owners retiring, sad to be selling or are they an exhausted young couple who can’t keep up with the hours required to keep their small business buoyant?
  • Is your differentiator that you will bring something special that the previous owners had not considered. 
  • It’s very important that you know what is included & excluded in the sale together with the condition of any machinery or equipment. 
  • Is the equipment leased or owned outright? When does the lease expire? Does it have a balloon clause that you will need to honour?
  • If you’re buying a “bricks & mortar” business, who owns the premises? What are they like? Are they quick to resolve issues or do they fight for every penny?
  • Are you taking on any additional debt or liabilities?

Tip no. 4: Cashflow is king!

Make sure you know the numbers; revenue, profit, cashflow thoroughly. Again, invest in a good accountant. The business may look all shiny & profitable on the outside, but why is it being sold? 

  • Look at the books for the past 5 years. Is the business steady & growing? Is it seasonal? Does it have spikes & troughs; why?
  • The no. 1 rule of any business is cashflow.  You may be very profitable in some months & struggling in others. If you’re booming in the holiday season from December through February, this wont help if you run out of money in November.
  • Are your suppliers reliable? What is your distribution channel? Is it diversified?
  • Make sure you can manage that cashflow. Plan with cash projections, arrange for offset & overdraft facilities but make sure that you can pay your staff & your bills through the seasons without needing to live on bread & water to do so.

Tip no. 5: Write an awesome business case

Buying a business is not something that you should rush into. It should be a well thought out & considered decision. It should be a tad overwhelming with a large dose of excitement at the challenge ahead. 

You should have your a-team. I cannot stress enough, surround yourself with specialists; an accountant, lawyer, finance broker, who can support you along the journey. If you have access to a business advisor &/or mentor, then that’s even better. Make sure that they are not only capable, but that they also have the time & desire to support your business.

Finally & most importantly, your business plan is the bedrock of your loan application. It is the story that will engage the bank in your vision & reassure them that you know what you are doing, you have a plan & you have considered all the road-blocks. This is where an awesome finance broker steps out from the crowd. 

At Clear Options Finance we will take all your research, review your financials & liaise with your accountant to put together a detailed business case to be submitted to the lender. This is the story that will give the lender comfort that you have researched your project thoroughly, that you are capable & you know what you are doing. 

It will demonstrate that you can repay your loan.

To arrange a free 1 hour consultation with Clear Options Finance call 0478 732 343 or email mary@clearoptionsfinance.com.au

OK so you don’t think it’s an exciting picture . . . but a picture defies a thousand words!

Having had a 20+ years career in banking & now starting my own business as a finance broker I think it’s fair to say I know a thing or two about bankers & finance. I also love statistics & can figure out just about anything with the use of a handy spreadsheet!

It is truly amazing what numbers & trends tell us. For example, the Sydney housing market through all it’s booms, bumps & dips over the past 40 years has remained at a consistent average growth rate of just over 7%. This means you double the value of your asset every decade!

What’s even more interesting is that if you had bought a house in 2008 for $450,000 (median price) it would now, even 18 months into a dip, be valued at ~$820,000. Your debt will have decreased (using 5% average interest rate) from $360k to $293k but the big story is that your equity (focus on the equity . . . the uplift far out-ways the cost of debt) will have grown from $90k (20%) to $527k (64%)!! That’s like saving $3,500 every month on top of your salary! This facilitates either upgrading to a new home or drawing on the equity to reinvest in an additional property.

The ability to build & secure wealth & a passive income (that is income you don’t have to work for . . happy days!) through property investment is a tool that most Australians don’t leverage. We are obsessed with paying off our mortgage where we should be utilising our biggest illiquid asset (our home) & turning it into a liquidity tool to invest. But you need to be smart about this. Don’t over-leverage your home & don’t stretch your budget to breaking point. Here’s where you need to talk to a smart & honest broker who has partnerships with property strategists & financial planners who can show you how this is done.

If you thought this last boom was grand, then you should have seen the one from the mid 90’s to 2004. Or go back a bit further to the late 80’s. We have them all the time, actually every decade has booms & busts. The property market is absolutely consistent in this regard, driven by good old fashioned human nature. We buy as the market rises for FOMO pushing prices higher & higher. Then we start to get nervous, with economists & journalists over-use of the term ”bubble”. After 2-3 years of double digit growth the central bankers &/or regulators step in using levers like interest rates or more recently regulatory intervention to slow things down, forcing everyone to take a breather (this is a good thing). When that works, talk of the bubble bursting, impending recession & the end of the world as we know it kicks in. We say that’s it, there will never be another boom like this, but guess what, good old human nature kicks in again & off we go for another cycle around the property market.

Australia is in a very unique position for continued prosperity. We have plenty of resources that the world needs & we have one of the highest immigration rates in the world to generate growth & innovation. So as long as we export stuff & import people, there will always be a new boom with the occasional bumps & busts to keep us on our toes.

So don’t worry if you think that you missed the property boom, you’re just in time for the next one.

To arrange a free 1 hour consultation with Clear Options Finance call 0478 732 343 or email mary@clearoptionsfinance.com.au

Is our property market falling off a cliff?

Last night 60 Minutes did what it does best this days, broadcasting an irresponsible & sensational story about the so called cliff property prices are about to fall off.

The facts were pretty light on & should be more accurately described as opinions. It talked about our unique addiction in Australia to property & feeding the engine of housing debt. What it didn’t mention is that Australia is also unique in our capacity to absorb more immigrants, to the tune of 200-300,000 per year. That’s a lot of people who need somewhere to live, need to eat, be clothed, schooled etc. They also need somewhere to work to keep the economy productive & prosperous for future generations. When we get these two aspects of the economic cycle balanced it works well, but within every decade it skews one way & then the other . . . then it corrects & we start all over again.

It’s true that the housing market is going through a correction which it does (as per above economic cycle) every decade or so. The difference between our current correction & the last one (remember the GFC anyone?) is that regulators put the breaks on what was becoming unmanageable levels of interest only loans to investors (predominantly) & owner occupiers (as well). The market is doing what it is supposed to do; cooling off & taking a breather from its bull run.

There is no doubt there are many people who borrowed too much, bought at the top of the market & cannot afford to service their loans especially if they have switched from interest only to principal & interest. For these people, I would highly recommend finding a good accountant or financial planner who specialises in debt restructuring who may be able to salvage the loss & even set you on the path to financial stability.

I for one don’t believe there is a cliff in our sights. That’s not a prediction, it’s my opinion. We have a sound economy, we have almost full employment, the fundamentals are not the same as pre-GFC. I think the market will be cool for the coming months & perhaps 2019.

As an optimist I believe this is a good time to buy, property should be a long term investment, there’s no rush, you can negotiate with the seller (if they’re distressed sellers, be kind), rates are still historically low but I agree likely to start moving upward (there are a lot of factors driving this decision, that’s for another article) so a good time to consider locking in a portion of your loan (not for too long, you need some flexibility . . . talk to your broker about options!).

Most importantly, make sure you consult with a qualified, well experienced & recommended mortgage broker. You should also talk to an/your accountant or financial planner as a broker can’t give you investment advice. If you feel that your broker is pushing you to borrow more than you are comfortable with, if they cannot clearly explain the risks & the alternatives of the options that they present to you . . . . walk away, find someone you trust. This may make you feel awkward or uncomfortable, but it beats the regret of being over leveraged & the bank foreclosing on your dream house.

Let me know what you think.

To arrange a free 1 hour consultation with Clear Options Finance call 0478 732 343 or email mary@clearoptionsfinance.com.au

Why a mortgage broker should be your best friend

As we approach retirement we start to think more earnestly about how we will maintain our standard of living where superannuation is looking less & less likely to be sufficient revenue stream we always thought it would be.

Paying off the mortgage by retirement removes a major living expense, but will that be enough? Your superannuation is likely invested in equities & perhaps cash deposits, so it’s worth thinking about diversifying your retirement assets. Property is an investment option worth thinking about with a whole country outside Sydney & Melbourne that is more affordable & some would say more desirable to be considered when purchasing.

There are lots of smart approaches to investing in the Australian property market. But who has time to think about it let alone do hours of research on house prices, rental returns, capital growth trends, what is the tax impact, how does negative gearing work & who is offering the best mortgage package for me?

I do! It’s what I do for a living. I spend hours everyday reading economic articles, researching data & forming an opinion about what the future looks like in the property market (Disclaimer: it’s an opinion not a prediction!)

I have no vested interest in which mortgage provider you use nor where or what you buy. What I do care about is that you make the right decision for your circumstances. For this, I will;

  • Listen to what you want, what are your circumstances, what are your limitations.
  • Challenge you to think of alternative options. I will share my knowledge & inform you of options that you may not be aware existed.
  • Guide you to speak to experts like an accountant or financial planner who have the same ethos as me with regard to your financial well-being.
  • Present you with 3-5 options & walk you through these to make the best decision for you.

Ok, so maybe I’m not your best friend, but I should certainly be a regular contact in your ecosystem to keep you up-to-date with what’s happening in the property & mortgage lending market.

Let me know what you think in the comments section below.

To arrange a free 1 hour consultation with Clear Options Finance call 0478 732 343 or email mary@clearoptionsfinance.com.au