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LTT Business Bulletin - February 2017



Leo Spivak, Business Banking Executive with NAB, on some

key things banks look for when evaluating finance applications


Approaching a bank for finance doesn’t need to be a daunting or complex experience. With some pre-planning, you can be well placed to have all the answers to the questions that the banks will ask, greatly increasing the prospect of getting the approval you’re wanting.

What does a bank look for when you approach them for funding?

The bank will always look at the primary exit for a loan which comes from cash flow. When a bank does its due diligence on sustainability of the cash flow, it considers three key business risks.

Financial risk:

What is the financial strength of the business? This can include gearing, shareholder’s equity and cash flow after operation.

Do the owners have a good control over the business’s Cash Drivers, particularly debtors? Importantly, how are the numbers trending, both revenue and expenses?

What are the capital requirements of the business? How well is this managed?

Can the current profit in the business withstand future interest rate rises? Can the business meet its debt obligations?

Management Risk:

Breadth, integrity and experience – what is the track record of the current team in place and how knowledgeable are they of their business/industry?

Appropriate management structure and information systems – does the business evidence the ability to produce timely and accurate information? How good is the reporting and how well is it used to manage the business? Can the business generate forecasts and projections?

Does the business have a succession plan and adequate business protection in place, such as key person, business interruption and asset insurance?

Market Risk:

What is the lifecycle of the business i.e.; mature, growing or declining stage? How does it compare with its peers?

How susceptible is the industry to business cycles? Do they have a robust business plan in place? How consistent and sound is the profitability through various economic cycles?

How diversified is the customer or the supplier base? Is there significant reliance on one or two of them? What bargaining power does the business have over price? How watertight are their sales contracts?

What are the barriers to entry in this industry/business? What risks does the regulatory environment pose?

What is the level of competition in the industry and demand for their product? Are they vulnerable to substitutes? Can new technology in the market benefit or disrupt their business.

Some key things businesses should have in order when approaching a bank for a loan

  • Accountant prepared financial statements – Financial statements comprising of Profit and Loss statements and balance sheets for borrowing entities and all corporate trustees/guarantors for last 2 financial years. Not to be older than 18 months.
  • Individual Tax Return – Copies of individual tax returns for the 2 most recent years available. The most recent financial statement period must not be older than 18 months.
  • Statement of Position – For all Individual Borrowers, Trustees, Directors, Guarantors or Partners – to confirm their personal assets and liabilities.
  • ATO Portals – copy from the ATO internet portal, an Activity Statement List and Itemised Account Statement less than 3 months old.
  • Interim Management Financial Statements.
  • Confirmation of business structure – Family tree if structure is complex
  • Aged Debtor/Creditor Listing – Confirming the nature, spread, collection/payment terms of debtors/creditors.
  • Other items – Depending on the nature of the loan, other items may include, 6 months bank statements for a loan refinance, 12 month cash flow projections (if a new venture) and copy of certified Trust Deed if the borrowing is in the name of a trust.
  • For a property purchase – Copy of sales contract, lease agreement, rental statements and tenancy schedule if appropriate. P&L statements for the borrowing entities.

Ultimately, any bank will simply want to ensure that the business can service the loan. At NAB, we want every customer experience to be a positive one, so we’re ever mindful that whatever decisions are made, they won’t lead to undue stress.

Leo Spivak is a Business Banking Executive with NAB. You can contact Leo at leo.x.spivak@nab.com.au