Financing your
business
A guide for business operators in South Australia
www.statedevelopment.sa.gov.au/smallbusiness
Table of Contents
01 Overview ....................................................................................................... 3
02 Determining financial requirements............................................................ 5
03 Types of finance ........................................................................................... 7
04 Major sources of finance ........................................................................... 10
05 Developing the loan proposal ................................................................... 11
06 Are you a good risk? .................................................................................. 18
07 Maintaining a successful relationship with your financier ...................... 26
08 Crowdfunding – another source of financing your business.................. 28
09 Notes ........................................................................................................... 31
Financing your business
Page 2 of 32
01 Overview
No business activity, whether it be marketing, sales, production, administration or
planning, exists independently of the financial factors governing the operation.
Finance is the ultimate business reality.
Careful preparation is essential when it comes to borrowing. It begins with a
study of the financial requirements of your business and a matching of the
appropriate loan facilities to those requirements.
Once the financial requirements have been identified, you need to plan your
approach to potential lenders prior to making the appointment to present your
application - a well-prepared application will increase your chances of being
successful.
While a well-prepared business plan or loan proposal may be regarded as your
passport to finance, your ability to obtain the loan on cost-effective terms that suit
you will depend upon your presentation and negotiating skills in the loan
interview.
The Department of State Development has designed this guide to help you
through the process of obtaining the most effective finance for your business. It
contains a series of checklists to help you determine your financial requirements,
identify sources of funding and prepare your finance application to a bank or
finance company.
In preparing to seek finance, as well as seeking professional advice (through
your accountant and/or business adviser), you should also do your research
online to find out what lenders are offering, and/or visit several lenders to ask
them about their lending options. This will help you determine who is offering the
product(s) you need on the best terms i.e. shop around for the best deal!
Also see the following Department of State Development guides:
Managing your cash flow
Taxing your business
Negotiate your way to success
Financing your business
Page 3 of 32
01 Overview
Readers are advised:
• The purpose of this guide is to provide general introductory information.
• The guide does not purport to contain all the information that would be
relevant to any particular business opportunity.
• The guide is provided to interested persons on the basis that they will be
responsible for making their own assessment of that opportunity with the
assistance of the information provided.
• All figures contained in the guide should be regarded as estimates only based
on general samples and may be subject to error.
• The information in the guide should not be relied upon in substitution for
professional advice and individual investigation.
• Persons interested in pursuing any particular business opportunity are
strongly advised to fully inform themselves by taking professional advice as
to the extent of their rights and obligations—particularly in relation to any
proposed investment.
• The guide is provided subject to the terms of the formal disclaimer, which
appears on the last page.
Financing your business
Page 4 of 32
02 Determining financial requirements
WHAT TYPE OF FINANCE DO YOU NEED?
There are three main categories:
Property Finance – to finance the acquisition of a property, or to re-finance an
existing property loan.
Working Capital Finance – to finance stock, debtors and overheads in a
business.
Plant and Equipment Finance - for new or used plant and equipment, motor
vehicles, furniture and fittings.
The working capital requirements of most small businesses will revolve around
five key elements:
Stock, debtors, cash, creditors and bank overdraft.
The following checklist outlines the major considerations associated with each:
CHECKPOINT
Aspect
Amount required
How it should be estimated
Stock
Minimum necessary to
support turnover.
Relate to turnover by dividing annual
sales at cost by the number of times
stock is expected to turn over each year
(stock turnover).
Debtors
Minimum required to
support credit sales.
Relate to credit sales by multiplying
estimated sales each month by
percentage anticipated to be on credit.
Cash
Buffer for incidentals and
emergencies.
Relate to type of business and cash
flow, e.g. if few cash transactions and
ready access to short-term funds, cash
on hand can be very low.
Maximum possible, while
Creditors maintaining good relations
with suppliers.
Relate to monthly purchases by
multiplying estimated purchases at cost
by credit terms allowed.
Bank
overdraft
Relate to cash flow—bank will expect
facility to fluctuate fully from maximum
utilisation to position when overdraft is
not used and credit funds are in the
bank account.
Realistic amount based
on projected cash needs.
Financing your business
Page 5 of 32
02 Determining financial requirements
In the initial assessment of capital requirements and the resultant level of
borrowing required, it may be that the borrowing necessary will be high relative to
the capacity of your business to service the debt. This may make it necessary for
the financial requirements and business strategy to be reassessed. For example,
second-hand equipment or a vehicle may have to be considered, the credit terms
offered to customers may have to be reviewed, too much capital may be tied up
in stock, an equity partner may have to be introduced or consideration given to
contracting out certain functions.
Financing your business
Page 6 of 32
03 Types of finance
Once you have determined the type of finance you require, it is then important to
select the right product to match.
Generally speaking, short-term finance should be used for short-term assets,
such as stock or debtors, and long-term finance should be used for long-term
assets, such as property.
Following is an overview of the most common types of finance facilities.
SHORT TERM:
TYPE
DEFINITION
✓
N/A
A credit
Overdraft facility
limit on a cheque account
that provides the business with
short-term funds for working capital.
This is considered a short-term facility
as the bank can withdraw the facility by
giving the business notice (generally a
month).
Tips:
• Ensure it moves from overdrawn
balance into credit regularly.
• Do not use for long-term funding
purposes.
• Remember that an overdraft is
repayable upon demand.
Short-term
commercial bills
A form of commercial loan that can be
structured on an interest only basis, or
reducing basis, for short- term debt.
Tips:
• Interest is payable in advance.
• Commercial bills are highly sensitive
to interest rate fluctuations.
Bridging finance
A loan facility that allows a new property
purchase before the existing property is
sold.
A short term finance facility for import and
export business usually negotiated in
foreign currency.
Tips:
Letter of credit
• Banks can also advise on the
creditworthiness of overseas buyers.
• Short-term and longer-term finance is
available.
Financing your business
Page 7 of 32
03 Types of finance
LONG TERM:
✓
TYPE
DEFINITION
Commercial loan
Loans for most commercial purposes such
as property, working capital or plant and
equipment.
Long-term
commercial bills
A form of commercial loan that can be
structured on an interest only basis, or
reducing basis for long- term debt.
Commercial
property loan
A commercial loan that is specifically written
for property. This is normally a medium to
long term loan.
Fully drawn
Development
loan
Hire purchase
and asset
purchase
N/A
A loan facility that reduces on a
principal and interest basis over a fixed
term.
Loans tailored for developments that can be
drawn down in progress payments as
required up to an agreed total.
A loan facility for plant and equipment
that has a fixed term with fixed monthly
principal and interest repayments and
also may have a final lump sum
instalment or “balloon” payment.
Tips:
• You will need to provide a deposit.
Debt factoring
A working capital facility with a limit based
on a percentage of the debtor payments due
to the business.
…CONTINUED
Financing your business
Page 8 of 32
03 Types of finance
LONG TERM…CONTINUED
TYPE
Leasing
DEFINITION
✓
N/A
✓
N/A
A finance contract based on monthly
rental payments in advance or arrears
over fixed term with a “residual” payment
due at the end. Normally used for plant
and equipment and motor vehicles.
Tips:
• Working capital will not be depleted as
deposit is not required.
• Asset being leased becomes the
‘security’ in most cases.
• Negotiate repayment term up to five
years, tailored to cash flow.
Mortgage loans
Purchase of land, buildings and other
fixed assets.
Tips:
• Interest-only loans are obtainable from
some lenders.
Home equity
A loan that is secured by the equity in a
borrower’s home.
OTHER:
TYPE
DEFINITION
Purchase of motor vehicles, equipment and
any other worthwhile purpose.
Tips:
Personal
instalment loans
• Are usually made available for modest
amounts and are repayable by
instalments.
• May be secured or unsecured.
Financing your business
Page 9 of 32
04 Major sources of finance
Once you have determined the product(s) you are looking for, the next step is to
find out who has those products on the best terms. The major sources of finance
are as follows:
• Major Trading Banks—All of the facilities are available from the major banks
such as National Australia Bank (NAB), Commonwealth Bank of Australia,
ANZ and Westpac, Bank SA and Adelaide Bank.
• Finance Companies—Offer a good range of commercial plant and equipment
products and working Capital facilities.
• Accountants—Your accountant may be able to arrange business finance on
your behalf.
• Finance Brokers—A finance broker will arrange finance.
• Merchant Banks—Mostly for large transactions.
• Friendly Societies—Have a limited range of commercial products, but are
competitive for personal lending.
• Building Societies—Have a limited range of commercial products, but are
competitive for personal lending.
HOW MUCH WILL THE BANK OR FINANCE COMPANY LEND ME?
This will depend on the quality of the assets being offered as security, but this
table may help you to work out how much you can borrow:
TYPE OF ASSET
LENDING VALUATION RATIO (LVR)
Stock
20–50%
Debtors
20–75%
Plant & Equipment
20–100%
Property
60–75%
Generally speaking, assets will score a higher Lending Valuation Ratio (LVR) if
the bank can easily identify and sell them in the case of default in repayments.
It is important to remember that the different LVRs are dependent on varying
factors. Stock is dependent on how easy it is to sell, on what conditions the raw
materials were sold to the business, the processing time from raw material to
finished goods, and whether the stock may deteriorate quickly (an example is
food related products). Debtors are dependent on their quality.
If you deal with what are considered blue chip companies or Government, the
LVR will be higher than if you are dealing mainly with small companies.
Financing your business
Page 10 of 32
05 Developing the loan proposal
PLANNING FOR FINANCE
Planning for finance lowers the risk to the lender and allows you to ensure that as
a business owner, you can adequately manage and appropriately utilise the
finance you obtain.
The key considerations of a finance plan should be:
• Can the business afford to make the principal and interest repayment on time
every time?
• Has the bank enough security to recover the debt if the business cannot make
the repayments?
• What is the track record of the business with lenders?
These three components will be the most important consideration from a bank’s
perspective, especially the track record of the business. The business banking
manager will look at the past relationship they (or other financial institutions)
have had with your business and whether you have been able to keep on track
with loans in the past. This will then determine to a large extent, the trust the
bank has with financial projections you have made in your application.
The time, effort and expense incurred in preparing a well-researched and
thorough business finance application are well worth it. There are four immediate
benefits:
• It tells you where your business stands financially.
• It draws a quicker response from a lender.
• It is likely to result in a loan package which is tailored to the needs of your
business.
• It helps to obtain the most competitive interest rate and fee structure available.
Many lenders have a standard application form. While such pro-formas may not
have to be used, the information provided should enable the lender to make an
informed credit decision.
Financing your business
Page 11 of 32
05 Developing the loan proposal
DEVELOPING THE LOAN PROPOSAL
EXPLANATION NOTES on following pages)
CHECKLIST
(refer
to
Details required by a lender to assess a business loan proposal:
The purpose of the loan - Outline the
following:
✓
Actions
• Amount and term of loan required.
• What the funding is required for.
• Who the loan will be paid to at
settlement.
• How the loan is to be repaid.
• What security you are offering for the
loan.
• What the valuation of the security is.
• Whether there is an independent
valuation of the security or not.
• Whether there are any contract details
and if so what these are.
• Whether there is a settlement date on
the contract.
• Facilities required.
Applicant details - Outline the following:
• The borrowing entity.
• The legal description of the borrowing
entity.
• Determine whether there will be
guarantors and outline names and details
of these people in the proposal.
• The owners’ and managers’ details.
• The contact details of your accountant
and solicitor.
Financing your business
Page 12 of 32
05 Developing the loan proposal
DEVELOPING THE LOAN PROPOSAL CHECKLIST…CONTINUED
✓
Applicant details…continued
Actions
• Details of your current banker.
• Determine whether legal documents are
required in the proposal.
Business and industry details - Outline
the following:
• The management team.
• Your products and services.
• The history of the business.
• Details of the market you operate in.
• Resources
business.
and
location
of
your
• What plant and equipment and other
resources your business currently owns.
• Your competitors.
• Where your business fits in the market in
relation to your competitors.
• Your key suppliers.
• Your key customers.
• Key staff and their roles within the
business.
Financial details - Outline the following:
• Financial statements
• Cash flow projections.
• Current borrowings and facilities.
• Personal assets and liabilities.
Financing your business
Page 13 of 32
05 Developing the loan proposal
DEVELOPING THE LOAN PROPOSAL CHECKLIST…CONTINUED
Financial details…continued
Security offered:
✓
Actions
• Real estate.
• Plant and equipment.
• Other assets.
• Include details of any guarantees to be
offered.
Collateral business:
You may wish to take advantage of other
services the financial institution has on
offer—this is value adding for the bank
and may result in potential cost savings
for your business. You may wish to
investigate the following services and
supply
details
of
your
current
arrangements:
• Insurance.
• Superannuation.
• Payroll services.
• Investment advice.
• Are EFTPOS or credit card facilities
supplied?
• Are on-line banking facilities supplied?
• Are bank guarantees supplied?
EXPLANATION NOTES:
Purpose of the loan:
A lender will want to know in detail what you require finance for, as well as the
terms and facilities you require. This includes:
• • Amount and term of loan required—How much you need and how long
you need it for. What the funding is required for—who the money will be paid
to at settlement and the breakdown of plant & equipment, working capital etc.
Financing your business
Page 14 of 32
05 Developing the loan proposal
• Repayment source—Where the repayments come from. This may be from
revenue from the business continuing at the current rate; perhaps from
increased sales due to the purchase of additional capacity in the form of
equipment, or it may be from reduced costs due to improved technologies
within the business by the purchase of new equipment. It is important to detail
exactly how the funds are being generated to pay for the loan.
• What security you are offering for the loan—The assets that are being
offered to the lender as security for the loan. The following table illustrates the
value of different types of assets:
TYPE OF ASSET
LENDING VALUATION RATIO (LVR)
Stock
20–30%
Debtors
20–75%
Plant & Equipment
20–100%
Property
60–75%
It is important to remember that the different lending valuation ratios are
dependent on varying factors. For further information, refer to the section on
“How much will the bank or finance company lend me?” (Page 10).
• Valuations of security—What the assets to be offered as security are worth,
and the details of any independent valuation. Independent valuations can be
important, however, it should be remembered that they will cost the business
money to obtain. In some cases the bank may request an independent
valuation. Also detail whether there is an independent valuation of the security
or not.
• Contract details—The details of any contract for the purchase of a property,
business, or plant & equipment, with a copy provided in the application.
• Settlement date—What date do you have to pay the vendor, or supplier of
goods.
• Facility type—What types of products or facilities are required. You may need
more than one type of facility.
Applicant Details:
Describe and explain your business; your history, your management skills and
gaps, your financial details and track record etc. Provide as much information as
possible and be honest with the lender.
• Borrowing entity—Details of the borrowers or the entity that is to be the
borrower.
• Legal description of the entity—(i.e. ABN/ACN & ABC for a company,
company structure etc.).
Financing your business
Page 15 of 32
05 Developing the loan proposal
• Guarantors—The names and details of the individuals that will provide
personal guarantees for the loans.
• Owners and Managers—The owners and managers names and details.
• Accountant and Solicitor—Contact details in case the bank requires further
legal or financial information.
• Bankers—Current bankers’ details.
• Legal
Documents—Examples—Copies
of
Partnership
Constitution of Company, or Trust Deed for a Trust.
Agreement,
Business & Industry Details:
• Management—Outline the management team and the structure and
background of your business.
• Products and Services—What are you offering to the market?
• History—The track record of the business and how you came to be where
you are today.
• The market—Outline the geographical location, size, growth levels, trends,
and number of competitors in your market.
• Resources and location—Where the business currently operates from, and
what plant and equipment and other resources it uses.
• Competition—Provide a profile of the competition, their capabilities, location,
strengths and weaknesses and where your business fits in relation to them.
• Suppliers—The details of the key suppliers of resources to the business.
• Customers—Outline briefly your key customers (details of their value to your
business).
• Key staff—Details of the key employees of the business and their roles within
the business.
Financial Details:
• Financial Statements—Include financial statements for your business for the
last three years.
• Cash Flow Projections—Supply projections for at least the next twelve
months, particularly in regard to the purchase of new equipment, which should
increase revenue and/or reduce costs.
• Current Borrowings—Detail the current facilities and terms of any
borrowings against the business.
Financing your business
Page 16 of 32
05 Developing the loan proposal
• Personal Assets and Liabilities—A statement of assets and liabilities of all
guarantors.
Security:
• Real Estate—If your business is providing real estate as security for the loan,
outline the legal description and address of the property.
• Plant & Equipment—If you business is providing plant and equipment as
security for the loan, provide details of each item.
• Other Assets—Description of any other assets to be offered as security.
• Guarantees—Details of any guarantees to be offered.
Financing your business
Page 17 of 32
06 Are you a good risk?
Talking to a banker can seem difficult. A good strategy for dealing with a lender
is to understand the qualities they are looking for. The following five areas are
what most lenders consider. Before going to the lender it would be a good idea to
make an inventory and itemise the qualities in the areas listed below. That way,
preparation of your finance application can be more effective and questions likely
to be posed at the loan interview can be anticipated.
FIVE ‘C’S OF CREDIT – GETTING A BANK LOAN FOR YOUR BUSINESS
An easy way to remember the critical factors in a business loan assessment is
the approach offered by the five C’s:
Character, Capacity, Capital, Collateral and Conditions.
Note: Consult with your accountant to assist with your business planning and
analysis of your operation as well as help you prepare the necessary financial
statements. It is always good to start off on the right foot with your lender. The
relationship will be for a long time.
Character
The lender is looking for such things as training and knowledge, experience,
financial competency and plans for the future.
• Training and knowledge are examined in terms of education and
understanding of the industry. As a manager you are called on to make
decisions in the areas of production, marketing, finance and human resources.
• Experience cannot be under-rated. Direct experience under many different
managers, as well as in other industries, gives a strong basis to be a good
manager. It also gives a manager the resources often required when times get
tough.
• Financial competency means that you can understand the importance of
records and record keeping as well as how to use them to your advantage.
Nothing frustrates a lender more than a person who doesn’t have a clue about
the finances of the business. In order to understand the business, records and
current records are necessary.
• Plans for the future indicate an attitude that will allow a lender to size up an
operator. Are the plans well thought out and logical? What are the
shortcomings? What are the strengths?
• The area of character can go a long way to help an operator achieve their
goals.
Remember to sell yourself at all times so the lender can have confidence in your
abilities.
Capacity
This refers to the ability to service the debt, replace assets as they wear out and
provide money for living and possibly expansion.
Financing your business
Page 18 of 32
06 Are you a good risk?
• In order to do these items the business must have liquidity. Being liquid
means nothing more than to have cash or the ability to generate cash to meet
ongoing commitments and expenses.
• Liquidity can also be referred to as working capital and is the difference
between current assets and current liabilities.
• In order to have healthy liquidity we must make sure that cost control is
exercised. Income must over time, be greater than expenses. Always
remember that you must strive to get the most bang for your buck and that
you can only spend that buck once.
Capital
Here a lender looks at the operator’s financial commitment as well as how clearly
he is personally committed. Personal commitment to the business includes
lifestyle choices. Farming is not a turnkey operation and it takes someone of
intelligence, ability and the desire to do a good job to be in charge at all times.
• Financial commitment is measured by the amount of money the owner is
putting up as compared to the lender. In farming it is rare for a lender to put in
more money than the borrower (50% debt to asset ratio).
• Even a huge net worth (assets less liabilities) may not be acceptable if the
lender is more at risk than the borrower. As farms get larger, managers better
and cash flows stronger, lenders will hopefully accept a lower percentage
stake from the borrower.
Collateral
This is also referred to as security. As a borrower you do not want to give the
lender all your collateral if possible. This limits your ability to act without the
lenders blessing. This could limit your ability to make other borrowing decisions
on your own and reduce the speed by which you may need to take advantage of
certain situations.
• The type of security determines the time it might take to sell in the event of
bankruptcy. Lenders do not want to be business operators. Even if plenty of
security is available, the time required to sell it can cause problems in the
lenders mind.
• A healthy and strong cash flow is certainly something that lenders will prefer to
collateral that is hard to liquidate.
Conditions
Even if all criteria are passed, conditions may prevent a lender to forward a loan.
Conditions generally include markets, consumer trends, economic predictions
and environmental considerations.
• How accessible and secure is the market?
• Even if a market seems strong and secure, what are the consumer trends that
may affect the business?
Financing your business
Page 19 of 32
06 Are you a good risk?
• We live in an increasing global economy. World-wide as well as local
economic outlooks are taken into account by the lender before he forwards a
loan.
• Ever more today environmental restrictions, possible damage to the
environment and past environmental damage can all prevent a loan.
• The positive thing that a borrower must keep in mind is that a lender needs to
lend money in order to make money. The money in an account is a liability to
the lender while being an asset to the depositor.
• A lender will decide if a loan is feasible, profitable and acceptable to you and
the lender.
• Good communication skills to express goals and objectives to your lender and
to explain how your plan is feasible and profitable will generally result in
acceptance by the lender.
FIVE C CHECKLIST
Character assessment
Honest, reliable, trustworthy
Integrity
Credit worthiness
Education, knowledge, experience and understanding of the industry
Business skills and acumen
Financial competency
Track record, if any, in business
Future business plans
Capacity assessment
Ability to service the loan and meet other commitments
Ability of your business to withstand a setback
Your capacity to exercise cost control and manage the business
profitably
Financing your business
Page 20 of 32
06 Are you a good risk?
FIVE C CHECKLIST…CONTINUED
Capital assessment
Financial strength
Quality of assets
Liquidity of assets
Debt-equity ratio
Collateral assessment
Your willingness to pledge security
Nature and acceptability of security offered
Adequacy of security
Conditions assessment
General economic outlook
Conditions in your industry
Implications for profitability and debt servicing capacity
Consumer trends
Explain business goals and objectives and feasibility and profitability
Environmental considerations
Financing your business
Page 21 of 32
06 Are you a good risk?
PRESENTING AND NEGOTIATING YOUR BUSINESS LOAN
Action
Be prepared and thoroughly familiar
with your finance application or
business plan.
Tip
Follow the checklists above to ensure
that you have gathered all the relevant
information that may be required.
Understand and investigate any tax
consequences (see GST Checklist for
Finance below).
If you invite your accountant or
business adviser to accompany you to
the loan interview, answer all questions
in the first instance. The lender will be
seeking to appraise your business
acumen and financial management
skills.
Practise the
financier.
language
of
the By adopting and practising some of the
more common terms, you will be seen
as an experienced operator, wellversed in things financial and an able
negotiator.
Develop a firm appreciation of the Have, at your fingertips, full details of
value of your business to the services utilised, services you may tap
financier.
in the future and fee revenue
generated by the lender as a result of
its association with you.
Use this information to win a point or
obtain a concession when negotiations
are under way.
Establish your negotiation strategy Determine what aspects of the
in advance.
financing arrangement are highly
important to you (non-negotiable), what
aspects you are prepared to deal on or
seek trade-offs (negotiable) and what
you are prepared to give up early to
demonstrate a spirit of co-operation
(negotiating issues of low importance).
Financing your business
Page 22 of 32
06 Are you a good risk?
PRESENTING AND NEGOTIATING YOUR BUSINESS LOAN…CONTINUED
Action
Tip
Determine the risk profile of your Identify the weaknesses of your
business.
business and where it may be
vulnerable in the eyes of a financier.
Negotiate the interest rate payable.
Choose between a fixed or variable
interest rate. If variable, link the interest
rate to a market indicator. Advance
sound reasons to minimise perceived
risk and seek lowest risk margin
possible. Choose any fixed term with
care. Seek ability to convert in future
from variable to fixed or vice versa.
Negotiate the repayment schedule.
Determine an appropriate repayment
term suited to your cash flow. Consider
interest-only
finance
where
appropriate.
Ensure
repayment
arrangement is flexible.
Remember that the greater the
frequency of payment of interest, the
higher the return for the lender.
Check whether repayments
required in advance or in arrears.
Negotiate the security arrangement.
Negotiate
payable.
the
amount
of
are
Is the loan to be fully secured, partially
secured
or
unsecured?
Where
secured,
ensure
the
security
adequately
meets
the
lender’s
requirements without being excessive.
fees Determine once-only costs payable.
Determine any recurring fees payable.
Express fees as a percentage of the
amount being borrowed to determine
effective cost of borrowing.
Be alert to prepayment fees if you
repay a fixed-term loan early.
Negotiate other issues.
Financing your business
Be prepared to negotiate the terms of
settlement
and
covenants
and
restrictions such as future presentation
of financial information, ability to
borrow further etc.
Page 23 of 32
06 Are you a good risk?
PRESENTING AND NEGOTIATING YOUR BUSINESS LOAN…CONTINUED
Action
Organise an
financier.
interview
with
Tip
the Be on time and well-presented.
Use the interview to demonstrate
commitment, enthusiasm and business
acumen.
Know where any deficiencies are in Be
prepared
to
acknowledge
your proposal.
deficiencies
but
answer
related
questions in a positive manner.
Maintain
effectiveness
negotiation at all times.
of Be positive but do not:
• become
aggressive
argumentative.
or
• be over-optimistic and disregard the
fact that all businesses have
weaknesses and are vulnerable to
risk
Be honest and expect the lender to
have more faith in your business than
you do.
Summarise the essence of your Indicate concisely the present and
proposal at the conclusion of future financial needs of your business
negotiations with financier.
and demonstrate that you wish to build
a relationship of mutual trust and
confidence.
Ask for a decision date to allow you
time to organize delivery, settlement or
alternative arrangements.
Financing your business
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06 Are you a good risk?
GST CHECKLIST FOR FINANCE
PRODUCT
Overdraft Facility
Commercial Loans
Commercial Bills
Commercial
Property Loans
Fully Drawn Advance
Bridging Finance
Development Loans
Hire Purchase
Interest is
Debt Factoring
Home Equity Loans
Leasing
Letters of Credit
GST STATUS
Input taxed
Input taxed
Input taxed
Input taxed
Input taxed
Input taxed
Input taxed
Principal is Taxable
Interest is Input Taxed
Input taxed
Input taxed
Input taxed
Taxable
Input taxed
TAXABLE SUPPLY
No
No
No
No
No
No
No
Yes
No
No
No
No
Yes
No
HOW WILL I KNOW IF MY PROPOSAL WILL BE SUCCESSFUL?
It must have these essential elements:
• Servicing Ability—Can I comfortably afford the principal and interest
repayments on time every time?
• Security—Does the bank have sufficient security to recover its debt if I can’t
make the repayments?
• Track Record—Have you been able to do what you said you could do in your
dealings with banks in the past?
You can be reasonably confident of success if you have explained these
elements in your proposal.
Financing your business
Page 25 of 32
07 Maintaining a successful relationship with
your financier
The financier to your business, whether a bank or some other financial
organisation, plays a pivotal role in its operations and success. For long-term
stability, an unofficial ‘partnership’ needs to be developed between you and your
financier.
The following practical tips are offered to help you maintain good relations with
your financier.
CHECKPOINT
Establish rapport and mutual confidence with the financier; if he or she
is transferred, take steps to re-establish rapport.
Conduct all business affairs professionally.
Talk to the lender before making a formal application for loan funds; get
to know the financier early before assistance is required.
Do all homework necessary; determine precisely what the financial
needs of your business are. Display initiative when applying for finance
but avoid being aggressive.
Keep your financier regularly informed on progress and developments
with your business by providing accurate and timely financial
information.
Invite your financier to visit your business premises.
Ensure your bank is competitive at all times; ask and shop around to
make sure you are getting a good deal.
Discuss important matters in person rather than over the telephone.
If difficulties are encountered with a loan or a problem is foreseen, take
the initiative and make an appointment to discuss the situation with the
financier.
Finance is the ultimate business reality.
The financial requirements of your business are made up of working
capital and permanent or fixed investment capital.
The fundamental principle of business financing is to match short term
capital with short-term needs, medium-term capital with medium-term
needs and long-term capital with longer-term needs.
Financing your business
Page 26 of 32
07 Maintaining a successful relationship with
your financier
CHECKPOINT…CONTINUED
A comprehensive business plan or finance application is needed in
support of any request for loan funds.
The information provided in your loan application should be adequate
for the lender to make an informed credit decision.
A lender will assess your loan applications having regard to character,
capital, conditions, capacity and collateral.
You can negotiate a cost-effective loan with a financier on terms and
conditions that suit you with thorough preparation, knowledge of the
financier’s language, an appreciation of the value of your business to
the financier and application of a skilled negotiation strategy.
Financing your business
Page 27 of 32
08 Crowdfunding – another source of
financing your business
Crowdfunding is a way of financing your business through donations of money
from a large pool of backers’ (the "crowd") - usually via online crowdfunding
platforms.
Typically, you post a profile of your business project or idea as a ‘campaign’ on a
website and ‘backers’ who believe in your campaign donate money to help you
achieve your goal. On some websites, you need to set a monetary and a
timeframe goal.
To encourage backers you can offer rewards and incentives (‘reward
crowdfunding’), such as acknowledgements, discounts, event tickets, gifts etc.
ADVANTAGES OF CROWDFUNDING - can include:
• Unlike investments, you still own your business in full.
• It can minimise risk - if you don't reach your goal, you don't have to commit
(dependent upon terms and conditions).
• A forum to interact directly with your backers.
• Instant access to market and product testing feedback from your backers.
• Free word-of-mouth marketing from your backers.
DISADVANTAGES OF CROWDFUNDING - can include:
• Competition - with others seeking crowdfunding.
• Reaching your funding goal in the timeframe.
• Successfully marketing your campaign to secure backers.
• Interaction with backers and on-going promotion of your campaign can prove
time-consuming.
• Providing backers with incentives and rewards.
GETTING STARTED
Crowdfunding isn't easy. Campaigns can fail for a variety of reasons including:
• Lack of planning/strategy before launch.
• No place in the market.
• Business idea/product development is insufficient to convince backers.
Below are some critical factors:
Planning
To secure backers you need to clearly demonstrate:
• What the business idea/product is/its purpose.
• Why they need and should fund your business idea/product.
Financing your business
Page 28 of 32
08 Crowdfunding – another source of
financing your business
• The business idea/product development timeframe once your funding goals
are achieved.
• The incentives and rewards available to them.
Define and state your goals
To set your backers expectations. Include:
• Your funding goal.
• Your funding timeframe.
• The business idea/product development timeframe.
Not all crowdfunding websites will let you post your campaign unless you have a
set funding goal and timeframe.
Choose your online platform
As there are a variety of crowdfunding websites you will need to research to find
the one that best suits your business needs and understand their terms and
conditions. Crowdfunding websites can differ in:
• The type of business ideas/products they accept.
• The audience they reach.
• Their requirements (e.g. some require you to raise funds within a set
timeframe).
• Their fees (some have upfront fees; others only charge if you reach your
funding goal).
• How they may help to promote your idea.
Post your campaign
You will need to give this careful consideration in order to ensure your campaign
stands out, is unique and attracts backers. Dependent upon your finances, you
may wish to consider seeking professional PR assistance.
Keep in touch with and thank your backers
Ensure you thank your backers and keep them informed of progress throughout.
Respond to questions and feedback as quickly as possible and deliver the
incentives and rewards you’ve promised them.
Dependent upon the scope of your campaign, consider using social media.
Above all, ensure that your supporters feel appreciated and important. This
increases the likelihood of them marketing your campaign to others for free.
Financing your business
Page 29 of 32
08 Crowdfunding – another source of
financing your business
AT THE END OF THE CAMPAIGN
Haven’t reached your goal?
It is important from the outset that you understand the crowdfunding website
terms and conditions.
Some will let you keep the funds you have raised even if you don't reach your
funding goal whilst others will not allow you to access any funds you raise unless
you reach your funding goal.
Can't implement your business?
You will need to decide what to do with any funds you have raised. Options
include offering your backers:
• A refund, or if this is not possible, informing them exactly how the funds have
been used.
• Other incentives or rewards.
If you are unable to deliver your backers the promised incentives or rewards then
you should refund their donation in full, or they may be able to take legal action
against you.
Financing your business
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09 Notes
Financing your business
Page 31 of 32
Department of State Development
GPO Box 320
Adelaide SA 5001
T: +61 8 8226 3821
E: DSDSmallBusinessStrategy@sa.gov.au
W: www.statedevelopment.sa.gov.au/smallbusiness
DISCLAIMER
The Government of South Australia gives no warranty and makes no
representation, whether express or implied, as to the accuracy of information
contained within this guide or the suitability of the information for any purpose.
Any use of the information contained in this guide (whether authorised or not) is
at the users’ sole risk and the Government of South Australia disclaims
responsibility for any loss or damage incurred as a result of such use. The
information is provided solely on the basis that users of the information will make
their own assessment of the accuracy of the information and users are advised to
verify all information contained within this document. Any information about the
law in Australia or South Australia is provided as general information only and is
not legal advice. This guide is a starting point only and is not a substitute for legal
or professional advice. While the Department has attempted to ensure the
information is accurate at the time of publishing, no responsibility will be
accepted for any errors or omissions and the Government of South Australia will
not be liable for any loss or damage incurred by any person as a consequence of
any use, reference or reliance on this information. Any such use, reference or
reliance shall be at the sole risk of that person who should seek their own legal
and/or professional advice if required.
COPYRIGHT
Produced by the South Australian Government
© March 2015
Financing your business
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