Becoming lender ready - lining up your plan, your financials and your risk
06 August 2021
Ongoing changes in the lending environment are changing the way lenders assess risk. By understanding these changes producers can put themselves in a stronger position to secure and maintain finance on favourable terms.
The new Lender Ready Program, supported by MLA and the Agri-Business Development Institute (ABDI) is helping red meat business operators to better understand these changes and effectively engage lenders to achieve their goals.
Five tips to become lender ready
Our last article outlined five tips to become lender ready Delve into the details with program facilitator and ABDI Director, Gordon Stone:
1. Leave plenty of time to plan and engage lenders
To speed up internal lender processes and get the best outcome, any paperwork lodged:
- must be thoroughly and professionally prepared
- should be all in-sync so there are no holes in the proposition
- must focus on minimised risk (or the risk should be fully explained).
In other words, your work must be lender ready so lenders can conduct their due process and due diligence. This all takes time on your behalf – even before getting to the lender.
2. Be 100% clear – clarity is the key
To prepare and lodge your paperwork, be sure it tells a logical story that aligns with your financials. To tell your story, be clear on:
- the outcomes you seek (your plans)
- how they’ll be implemented (your operations)
- where the risks lie and how they’ll be addressed (risk matrix)
- how this process will yield a profitable outcome (in other words, how your interests and the lender’s interests will be protected).
3. Have a business plan that’s specific
The business plan represents your story or narrative. It must be what we call ‘size appropriate’ - not too detailed yet detailed enough. That’s where loan size, complexity and level or risk come in. This business plan represents a key element of lender risk assessment.
4. Develop comprehensive financials
The financials tell the past, present and future story in figures and they must be in-sync with the business plan. Their role is to show how your low risk story will be profitable. Your financial forecasts must be realistic, building on the past and present.
5. Work out which lenders to engage with
It’s not just about finding a lender, but also about talking to the right people to support your business venture. The lender for you will depend on their appetite to fund your venture. While much of the decision making is by ‘credit’, the front line contacts are pivotal to do the initial analysis and feedback to you as the process unfolds. That’s where building a personal relationship with key lender personnel comes into its own!
Standing in a lender’s shoes
To effectively engage with lenders it’s critical to understand their wants, needs and drivers.
The Lender Ready Program explains exactly what motivates lenders in assessing loan applications or annual reviews.
Here’s a sneak preview of the Briefing Paper that’s used in the program outlining a lender’s wants, needs and drivers.
