02/08/2010

What Banks Look For in a Client?

Prior to the global financial crisis, borrowing money wasn’t too difficult a task. Instead of asking how much a borrower could afford, many lenders instead asked ‘How much do you want?’. While Australia didn’t follow the largess of the United States in its lending practices, getting finance was still far easier than it had been for a long time – perhaps ever.

Now that the purse strings have been tightened, it’s worthwhile to take a look at exactly what banks are now looking for in a borrower.

The first and most obvious factor is the ability to service a debt and this is mainly proved by way of financial statements and tax returns. In prior years, Low Doc and No Doc loans meant you could get away with showing minimal income, but now, such products are in short supply and have far more stringent conditions attached. If you have little income to show on your tax returns (for whatever reason that may be), don’t expect any favours from the banks.

Another obvious factor is collateral. Unsecured lending and cashflow lending has never been big in Australia, but it was available to the right borrowers on occasion. Now, it’s nigh on impossible to get unsecured funding for any significant amount. Property or cash must be provided – the only real exception to this for the mass market is lending against franchises or other niche industries (say childcare centres or accounting practices).

Account conduct is now something banks will look at in more detail. Dishonoured cheques, overdrawn accounts and missed payments on loans will all mean a bank is likely to decline your application. Even if your financials are strong, such blemishes on your accounts indicate to a bank that you can’t manage your cash.

The fourth factor is one that harks back to yesteryear for many businesses – a relationship with your bank. If you have a track record with your existing bank, the odds of getting a favourable outcome for your application increase greatly. Previously you could shop around and be greeted with open arms, but today with banks struggling to get cheap funding, they’ll provide money to their clients first and newcomers second. The lesson here is that if you don’t have a relationship with your current bank, try and get one or else move somewhere will you will have a direct contact.

Sourcing funding will remain a tougher ask for small businesses for years to come, but if you have a profitable, well run and managed business you should have no problem in getting the cash you need.
 

Ewan Fleming | Local Business Banker  Ewan Fleming began at Westpac in June 2009 to take on the brand new role within the organisation of Local Business Banker. His role has brought business relationship management back into the branch for SME's, who in the past would have needed to deal with managers in dedicated business centres or worse, central call centres. Prior to Westpac, Ewan was self-employed as a commercial finance broker and also has experience in accountancy and with other major banks.

Important Note: These articles have been prepared for general circulation and are circulated for general informational purposes only; these articles should not be regarded as business or investment advice. The articles represent the views of the writers and are subject to change without notice. Additionally, while every care has been taken in the preparation of the articles no representation or warranty as to accuracy or completeness of any statement is given. An individual or organisation should, before any business or investment decision is made, consider the appropriateness of the information in this document, and seek professional advice, having regard to objectives, situation and needs. This document is solely for the use of the party to whom it is provided.

Back to News and Media