This has highlighted the need for businesses to ensure that they are “bankable” and as well positioned as possible to make them an attractive lending proposition.

So, what exactly does it mean to be “bankable” and how do you demonstrate that you have a healthy and successful business? The two key areas that business owners should focus on is being able to demonstrate financial performance and how well your business is run and organised.

With financial performance, you should have the capability to be able to produce on demand and up to date financial information. This not only provides you with the ability to be able to review the performance of your business at any time, it also means that you can provide up to date financial information to any lender in connection with any application for funding.

In addition to assessing whether your business has sufficient surpluses to service debt and build equity, lenders will generally have increased confidence if financial information is provided in a timely fashion. The types of financial information and frequency of providing it expected by lenders largely depends on the level of funding that you require. Lower levels of borrowing will generally mean that at the most you will need to provide financials only at the beginning in order to evidence that you can service the debt whereas more complex and higher levels of funding will often mean that ongoing reporting is required. The most common forms of financial information that you will be asked for by a lender are summarised generally below:

• Annual accounts – these will provide a summary of how a business has performed over the 12-month period up to their financial year end, which is 31 March for most. Most lenders will make comparisons between the most recent and previous accounts to assess performance and will generally focus on evidence of growth or decline, income versus expenditure, surpluses, business equity and debt levels. 
• Interim Accounts and Management reports – these will normally be asked for in addition to annual accounts and the further from your financial year end the more likely it is to be asked for these so that a lender can assess at any given time whether performance is tracking consistently with or better than the annual accounts. 
• Budgets and Forecasts – unlike Annual and Interim Accounts, which look at historical financial performance, Budgets and Forecasts are forward looking. These should always be set realistically as lenders like to see consistency when comparing these with historical accounts. Forecasts are often used to evidence new revenue and ability to service where the historical accounts may not support this. 
• Aged debtor and creditor reporting – is commonly asked for related to larger and more complex lenders and allows the lender a further health check of a business by assessing where a business is at regarding the payment of creditors (those who you owe money to) and collection from debtors (those who owe you money).

With your financial accounts it is critical to understand the areas that lenders will focus on and how you can best work with your accountant to present information in order to optimise a positive credit outcome with a lender. For more information and tips on Preparing Year End accounts for funder assessment please see our previously posted article on this subject at: https://www.financenz.co.nz/news/preparing-year-end-accounts-funder-assessment 

Having a good credit score is another key aspect of financial performance, and this month we have an article on how important this is, which we hope will provide some useful insights.

The second key area of being “bankable” is how well your business is run and organised and the types of information a lender will be looking for (dependent on the level of funding support) to demonstrate this is:

• Capable leadership and key people – this will generally include Directors, Senior Managers or Leaders, Key Advisers and personnel who are key to the business’s continued sustainability and success.
• Business sustainability - a sustainable, differentiated and clearly articulated value proposition to customers.
• Evidence of planning – A comprehensive business plan, a marketing/sales plan and strategic plan all help to prove that you have a focussed and well organised business.
• Good Management Information Systems – for effective decision-making, and for the coordination, control, analysis, and visualization of information in an organization, which typically covers the areas of people, processes, technology, and performance.
• Contracts and well documented terms of trade – where appropriate and possible these can ensure that a business has more assurance around financial performance and has ability to hold both suppliers and customers alike accountable against any agreement that exists.
• Compliance and risk – this includes evidence of compliance with any regulatory requirements and key business risks are covered and managed (some of which can be evidenced by provision of Internal Policies, Shareholder Agreements, Key Person and other related business risk insurance policies)

Being perceived as being highly “bankable” by clearly demonstrating financial performance and how well your business is run and organised should ensure that you can access and attract quality funding partners and where finance costs are competitive.

A key part of what Finance NZ partners do for our customers is to work closely with you to understand your business and best advocate for you for any specific funding requirement. Please get in touch with us if you feel you need some expert help to communicate how “bankable” you are and then we’ll approach one of our broad range of funding partners on your behalf.