Written by Andrew France in September, 2007

Taking time with your finance decisions and application at the start can save you time down the track and ensure that you get a successful outcome and the best possible deal. Here are a few things to consider and questions to ask when applying for finance.

Why do you need finance? – Know clearly what your need is and carefully consider the different ways to achieve it. Internal funding is the cheapest way to finance a project, followed by debt financing options followed by equity. Is your need for short term or long term funding? What is the expected return? How much to do you need? All of these factors will influence your choice of finance tool.

Know what you are willing to part with as security – Are you willing to involve personal assets? What property will you allow to be used? Some finance companies will lend against goodwill without property security. The type of security you are willing to provide will impact the rate you are charged. Explore ways to structure your business finance to help you minimise your personal non deductible debt and maximising your deductible debt.

What debt levels can you service? – Responsible financiers are going to look carefully at your income levels and will not allow you to borrow beyond what you can cope with. Inappropriate finance decisions have left business with significant debt levels which can cripple. Understand your cash flow and have strategies in place to ensure you meet your obligations and do not let other parts of your business suffer.

Who will the borrowing entity be? Structuring your borrowing and ownership of your assets from the start will help you avoid tax issues later and ensure that your assets are appropriately protected. Company and trust structures are the most common methods used however make sure that the structure you select allows you to claim all possible deductions.

Tell a good story – Market yourself and your business to your potential financier. Let them get swept up in your enthusiasm. If they believe in what you are doing and trying to achieve it will come through in the application submitted. Have confidence in the value of your business.

Provide as much information as possible at the start – Drip feeding the financier with information will leave you frustrated and will slow down your application process. Having your information prepared and well presented speeds up the process. Are your records are up to date?

Understand the real cost of your finance – Do you want the lowest rate or the lowest cost? It is important to make sure that you are comparing effective rates. Get a good understanding of the ongoing line fees, up front charge and exit charges. Make sure you build these into your assessment of rate when you compare providers.

Develop a relationship – The consultant you are dealing with needs to hit target and you want your funds to grow your business. They have a relationship with credit. How are they going to present you to the credit department? The healthier your relationship is with the finance consultant the easier the application process will be. Deal with someone you trust.

Consider protection – Some providers will require it, and if you are smart you will already have it – income and life insurance to cover the value of your loan and the repayments. Possessing such cover is an important step to protect yourself and those that matter to you in case of injury, sickness or death.

Read the fine print – Make sure that the contracts you are signing allow you to do what you want to do. Can you make early repayments? Can you get out of the loan? What happens if your circumstances change? What happens if you miss a payment? What reviews will take place on your loan? How long are you locking in?