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Finding the funding to help achieve business growth is one of the biggest challenges facing small and medium sized enterprises (SMEs), but a common trap is to take the first opportunity that comes along without fully considering the ongoing terms and conditions, warns James Macfarlane, head of debt advisory at HLB Mann Judd Sydney.

“SMEs need to ensure they fully understand the requirements of any financing, and have researched all the options, before committing themselves; otherwise they could end up in a difficult position in the future,” he says.

“There are a range of financing options available, but all have pros and cons that need to be reviewed.  Unfortunately, I have seen small business owners who are so excited by the fact they have been offered a loan, that they fail to fully weigh up the obligations required of them – sometimes with costly consequences.

“It can be difficult for SMEs to obtain growth funding, but there are good options.  Currently the NSW government is trialling an Accelerating Growth Loan for SMEs. This is an unsecured option and is a good effort from the government to help SMEs who are finding it difficult to get funding, and don’t yet have enough assets to borrow against, to grow and hire employees.”

Mr Macfarlane says that regardless of the financing option being considered, it is important to follow a few simple rules.

“Firstly, have a thorough read of the terms and conditions of any agreement.  Ensure that the commitments are something that can be met for the term of the proposed loan by the business.  Don’t just take the first offer that comes along.

“Secondly, ask whether it is a fair deal and whether the lender can be trusted to work with the business in the future.  It’s important to test the market properly and see what else might be available.

“Next, ask someone who is in your corner and who is independent of the lender to review the loan and whether it seems appropriate and the terms and cost seem fair and reasonable.”

Mr Macfarlane says that most lenders will require the following:

  • Details of the business and any corporate structure and its ownership
  • The past three full years of financials of all trading entities
  • Most recent management accounts to the last quarter of trading.
  • The last two years of personal tax returns for the directors of the business and security providers.
  • A projection (profit and loss statement and cash flow if possible) for the upcoming calendar year, including assumptions.
  • Personal asset and liability statements of directors.
  • Description and history of the business including details of aspects and relationships that are important to the business.
  • Three months’ worth of bank statements or summaries on the business trading account and the actual loan accounts as well.
  • Debtors and Creditors Aged Trial balance as at the last quarter.
  • If a trust is involved then a certified copy of the trust deed.

“External advisers can help build this business story and link in all of the other information required, in a way that satisfies the bank and shows the business in the best light.

“It’s important to take control of this process rather than simply allow the lender to dictate the process as well as the terms and requirements.  Presenting the funding request in a professional manner, with up-to-date information, makes it simpler for the lender to make a decision on the credit.

“Also, be aware with the lenders you are usually dealing in the SME space often have many clients, are time poor and require the applicant to do a lot of the work.

“Having someone to help coordinate the process, who understands your business as well as how the process works, will help secure funding that best suits the business,” Mr Macfarlane says.

HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and part of the HLB Mann Judd Australasian Association.