High business turnover does not automatically mean high borrowing power
Turnover is the value of sales over a period. It is not the cash available after stock or materials, wages, rent, tax, debt payments and other operating expenses. Two businesses with the same turnover can have very different profit and cash-flow positions.
Australian Government business.gov.au says a business should understand its income, expenses, debts and cash flow before applying for a loan. It recommends using this information to decide how much funding is needed and the maximum repayment the business can afford.
Follow the money beyond revenue
A profit and loss statement lists sales and expenses and shows whether the business made a profit or loss over the reporting period. A cash flow statement tracks when money actually entered and left. A profitable invoice is not the same as cash in the bank if the customer has not paid yet.
Existing loans, leases, credit limits, tax obligations and seasonal working-capital needs may also affect the cash available for another repayment. The lender's treatment depends on its product and assessment policy.
Prepare three connected sets of information
Prepare current profit and loss records, cash-flow history with a reasonable forecast, and a clear list of assets, liabilities, funding purpose and amount required. Explain seasonal or one-off movements rather than presenting only the strongest month.
business.gov.au notes that documentation varies by loan, but may include financial reports, cash-flow statements, forecasts, lease agreements, a business plan and personal financial information. An accountant or business adviser can help ensure the reports are accurate and consistent.
Match the finance to the actual need
BV Finance can help compare eligible business-finance structures and lender document requirements. The available amount, cost and approval outcome depend on the business, product, security and lender assessment.
Sources and practical tools
General information only. This is not financial advice. Loan options and eligibility depend on your personal income, liabilities, assets and lender assessment criteria.
Comments