Future-proof your business by being lender ready
08 April 2021
The lending environment has changed substantially, with a raft of new considerations for producers who are going for a loan, including how to prepare their application and what help they can get.
Many business owners are looking for opportunities to expand, diversify and adapt their enterprise, but are held back when it comes to finance.
Gordon Stone, Director of the Agri Business Development Institute (ABDI), said many business owners were unaware of how the changes have affected the lending process.
“In the wake of the Financial Services Royal Commission and COVID-19, there have been significant shifts that many producers are unaware of that could greatly impact their ability to get a loan when they need it, least of which is the time and effort it takes,” Gordon said.
To guarantee that producers are best prepared to get a loan in this new environment, Gordon provides his top tips to be ‘lender ready’ (which are included in a new Lender Ready Program offered by MLA and ABDI).
1. Apply six key lender ready principles
Gordon said these six principles help producers understand each step of the lending process to achieve the optimum loan result for their business needs.
- Understand that the lender environment is constantly changing
- Have clarity in your plan, which gives potential lenders confidence (in you and your proposition)
- Be committed and courageous, dedicate the time, effort and discipline to create the plan and documents
- Understand you’re in the lender’s hands – they are in a position of power (also, recognise they want to do business with you if the proposition is right)
- Orderly engagement with lenders (you’re selling yourself to the lender and specifically to ‘credit’ who makes the ultimate assessment)
- Assess the offers in detail, both quantitatively and qualitatively.
Use these six key principles to create a checklist of how best to consider your plan of attack when taking a structured, organised approach to getting money from the lender(s) of choice.
Following these six key principles will ensure that both you and the lender can achieve the highest level of confidence and ideally produce a win-win scenario.
2. Be clear, disciplined, focused and administratively competent
Gordon said the changed lending environment means that now the onus is on the business owners going for the loan, and less so on the lender.
“Getting the right loan for your business needs requires you to come across as professional, organised and structured with your very clear plan,” he said.
“That’s why, in preparation, you need to effectively communicate what your plan and purpose for the loan is, and how you’re going to stand by your word about delivering on the proposition you’ve put forward.
“Your business plan, your loan application and associated financials are the key to planning, then demonstrating a proposition which will be highly regarded by lenders.”
3. Create a size-appropriate application
It’s important to ensure that loan applications are fit for purpose, with the level of paperwork completed relative to the loan size and the risks associated with it.
Demonstrating the available security of an enterprise, such as the property, livestock, plant, guarantees, infrastructure and a proven track record of solid management are key to providing lenders with the confidence to financially invest in you.
4. If you can’t complete the application, get help
“There’s a lot of work involved to ensure you are appropriately prepared, and at times this might feel overwhelming,” Gordon said.
“It’s okay to get help in these situations but understand that there will be a financial cost involved, so weigh up the pros and cons of this decision.”
When making this assessment, Gordon said to do a return on investment calculation on how best to tackle the paperwork required to develop the application, and potentially spread the work between yourself and others.
5. Value each page of your application at $40,000
Gordon stressed that paperwork, while frustrating, must be taken seriously, and the time dedicated to getting it done will be worth it.
“One of the lenders put it to me like this – ‘consider each page of a loan application to be worth $40,000’,” he said.
“This should make business owners recognise the importance of the time, effort and money that needs to be put aside to do the loan application well.”
Gordon said the return on investment calculation should also consider the extra value in saved interest costs that you could reasonably expect from a top-notch lending application.
6. Value your own time
Gordon said it’s important to work out where your time will be best spent with the application process before starting and plan it out accordingly.
“You time is valuable, and the loan process always takes longer than you think, so have that in mind when starting out,” he said.
“Plan where your time and labour will be best spent, whether that’s on-farm, in the office, in briefing advisers or on the application process, and get help to support those aspects you can’t dedicate yourself to, even if this means paying for it.”
Lender ready course:
In response to the changes to the lending environment, ABDI have partnered with MLA to develop the Lender Ready Program for producers to hone their business skills, refine their business plan and structure a proposal to take to their preferred lenders.
There are two options – a face-to-face workshop and online program (over three months) commencing in Brisbane on 28–29 April, or a completely online program (over three months) commencing on Monday, 19 April 2021.