Let’s talk about finance. For a growing business, or a business going through a dip or slow period, it’s one of the most important subjects there is – and also one of the most daunting. If you get it wrong there could be dire consequences, and it’s not always easy to get.
The most common way of finding a source of funding for your business is through a broker. Brokers are seen by most as a blessing, assisting business owners in navigating their way through the tricky commercial lending space by providing guidance and opening doors to trusted lending partners. A good broker will have a comprehensive view of the products available it businesses, and play a key role in assisting time-poor business owners to find the lender that best suits their needs by evaluating the trade-off of the speed, flexibility, and price, that the potential funding comes with.
A bit of a recent shakeup in commercial lending has meant that ‘traditional’ lending practices have made it harder for small businesses to get access to the funding they used to (let’s not mention the Royal Commission). But this raincloud has brought about a silver lining in the form of a plethora of Neobanks, fintechs, and small business lenders who offer flexible business funding through both speed and an ease of process that is changing the face of commercial lending. With so much new territory to navigate, it’s no surprise that the demand for good brokers has also skyrocketed.
Add to this the recent finding that one in three small business owners have had their applications for ‘traditional’ bank finance rejected, something that often leaves them dissuaded from applying through other channels or even applying at all, and the need for the services provided by a good broker has never been clearer.
So, what are the dos and don’ts of applying for finance through a broker?
Firstly, get all the information. Taking on finance in a business is a big decision, and business owners must be sure that they’ve correctly measured up their business plan, financial forecast, and strategy for repaying the finance before they draw it down.
Without knowing all of these things, the business risks overspending, under or overestimating, and the finance repayments could put the long-term strength of the business at risk. Great brokers can help with answering these questions, however they will never have the visibility that you, as a business owner, will have.
Secondly, brokers shouldn’t charge you. Brokers work for you and are not paid by you – they are paid by whoever provides your loan. The fee is for introducing the two parties – so if they’re asking you for a fee, this probably isn’t a good sign.
Great brokers don’t lose clients. The brokers who really know their stuff will have clients returning to them year in year out who will leave great reviews and references. Make sure that you ask for these – a good broker should be all too happy to pass you a few of their existing clients as reference, for you to call and check that they know their stuff and provide a great service.
While every broker will promise you the world, a great broker will give you real value without expecting anything in return – this usually presents itself in the form of good knowledge of both your industry and revenue model. While every business is different, a great broker will have a pretty good understanding of what your specific financial needs are from their experience assisting businesses like yours – they can even highlight potential problems you might not have thought about yet, or suggest financial strategies that they have assisted with in businesses in similar circumstances to yours.
If you feel comfortable with your broker, you should feel that you can trust them, that they are acting in your best interests (and not just theirs!), that they are responsive, and that they have given you their time without expecting your business. If they tick these boxes then the chances are they are probably the right broker for you.
Now I’ve got a great broker. Is my business approval-ready?
Your broker will help you navigate the tricky lending landscape, but once you’ve found a lender that suits your needs, you’ll need to maximise your chance at getting your business finance approved.
First, make sure that all your bills are up-to-date or ready to be paid. One of the most common ways for a finance application to fall over is a credit default, for a bill or invoice you might not have even known about. If you don’t have the funds in place to pay past or present invoices, make sure you have a plan in place to pay them.
Discuss the available options with your broker and only apply with one trusted lender at a time. As part of their approvals process, lenders will undertake a credit check to assess your credit health and see that you are not applying at several places at once. Having more than one open application at a time can also damage your credit score.
Ask for a pre-approval. Trusted lenders can undertake an assessment based on your financial information first, before carrying out any credit checks. This will allow you and your broker to get a better gauge of your business’ borrowing power, without costing you anything. Some lenders such as Sail Finance make it very stress-free for both business owners and brokers to get finance approvals in just thirty minutes, with only the requirement for three months’ bank statements and photo ID.
Know your proposed use of funds. Clear communication with your broker and potential lender will allow them to understand your business model and what opportunities the funding will provide to your business. If your broker is handling the application, it will allow them to advocate from a strong position on your behalf to get you the best result.
Australians are renowned for always wanting a better deal, and with so much competition in the broking and lending marketplaces, there has never been a better time to partner or realign your business with the best of both.
Dan McCarthy, Head of Sales & Partnerships, Sail Finance