As a supermarket operator, applying for business loans can undoubtedly be a confusing process. To obtain some answers to some critical questions, we reached out to our own finance broker partner, Abhishek Maharaj from Winquote, for help. If you’re thinking of seeking financial solutions, here are ten questions to ask yourself before beginning the process.
1. Does My Business Qualify?
Increasing compliance requirements from traditional funders have made the finance application process more difficult for supermarket operators and many businesses may be under the impression that they don’t qualify. However, the growing presence of alternative lenders means business owners have more financing options than ever. This is good news for most business owners, because it means no matter what stage of the business life cycle they’re at, they can qualify.
Depending on the financial solution required, banks may require businesses to meet certain conditions to qualify. These include:
- Serviceability, or ensuring your business meets sufficient income requirements
- A good credit record
- Acceptable security such as freehold supermarkets, leasehold businesses or equipment. (Lenders may offer unsecured finance on occasion)
2. How Much Do I Really Need?
To obtain the appropriate level of finance, businesses should run their capital requirements past their advisors. supermarket operators should also keep in mind the length of funding required in order to seek the right financing.
Insufficient funding could lead to continuous cash flow deficits, and this can take a toll on how your business performs. A deficit may result in further necessity to borrow funds. These additional finance applications may result in additional costs, impacting your credit score or the business itself.
In some scenarios, lenders may offer business loans in excess to your requirement. If this does occur, it is wise to keep these excess funds in a reserve for a rainy day where redraw facilities are available.
3. Do I Need Collateral?
The answer to this question is – not necessarily! Certain tier one finance solutions do not require collateral. A solution like this ensures that your business has cost-effective funding without limiting your equity in your personal home or your freehold supermarket.
Loans that do not always require collateral include:
- Equipment finance for items such as refrigeration, POS systems, or even coffee machines
- Cash Flow loans
- COVID support loans
- Occasionally, loans to purchase leasehold supermarkets
4. Can I Afford To Repay The Loan?
As discussed, businesses must be able to pay loans in the contractual period granted to secure financial service. Lenders make their assessments on factors such as whether or not surplus cash flow will be available. Before taking new loans, businesses should understand their own forecasted business performance in addition to their bank’s assessment. The application process assists with this determination. No matter the assessment, it is critical that businesses do not take loans they are unable to repay.
5. Will This Loan Help My Business?
Business loans should be sought when supermarket owners are looking to maintain or improve business performance. Loans can be applied for growth in some of the following ways:
- To obtain stock for increased demand
- To renovate an existing supermarket
- To acquire an additional leasehold or freehold supermarket
- For purposes directly related to business growth
Loans can also be used to simplify and benefit trade for supermarkets. Examples include:
- Consolidating debts to save interest costs
- Refinancing to new lenders in pursuit of a better banking relationship to reduce expenses and interest
- To payout existing business partners
6. What is my Credit Rating?
Your business credit rating tells potential lenders about your financial history with lenders and suppliers. Companies like Equifax and Dunn & Bradstreet record your credit conduct and issue a credit score. These reports are given with your consent to lenders to insure credit worthiness. Credit rating can be affected by factors like:
- Loan and supplier repayment histories
- Time in business
- Number of credit enquiries
- Court judgements and credit defaults
A good credit rating can be the difference between being accepted or declined for finance. Good habits to maintain good credit ratings include:
- Making payments (bills, loans, etc) on time. Late payments are noted on your record
- Refraining from unnecessary credit enquiries. Only submit finance applications you intend to proceed with
- Maintaining strong positive relationships with creditors such as suppliers and lenders to ensure agreeable terms are made if payment extensions are needed
7. Are my Personal Finances in Order?
As a self-employed professional, keeping personal and business financial information in order is critical. When seeking finance, lenders may require personal returns and your entitled personal income should demonstrate serviceability after personal expenses. Timely payments of liabilities and expenses show good conduct, and increases your chances of obtaining finance for both your personal and business needs.
8. Do I Have The Necessary Documentation?
Each loan requires different documentation for approval. Keeping your records up to date and accurate increases response time when applying for finance. Some lenders will prioritise applications where documents are readily available. These documents vary from loan to loan, and include but may not be limited to:
- Financial proposal/summary of the loan requested
- Business financial reports for the last 2 years
- Cashflow projections
- Evidence of payment for current financial commitments
- Verification of any security used to obtain the loan
9. Are there Additional Fees?
Pricing depends on the financial product. Details of payable fees include:
- Upfront application and lender due diligence
- Valuation costs
- Environmental reports
- Formal approval fees
- Settlement costs
- Ongoing monthly service costs
10. What Type of Loan Do I Need?
The loan required depends on its purpose. For example:
Imagine you require a refrigeration upgrade; lenders can tailor a loan to fit that specific purpose! For this loan, lenders may suggest a 2-5 year equipment loan, amortised down to nil. A loan of this kind ensures that the capital equipment purchased is paid down accordingly. You may avoid an interest only facility for loans such as this, as if you fail to pay down accordingly, the interest can capitalise and the associated cost can grow if repayments are not progressively repaid.
Because every loan is different, specifying the purpose of your funding is critical in order to obtain the product that works best for your business. For help, speak to trusted advisors to gain insight into which finance product might best suit your needs best.
We get it – navigating the need for financing can be difficult and confusing. Between deciding how much you need, and understanding what requirements you must meet, the process can be exhausting. If you need some help with funding the growth of your supermarket feel free to reach out.