In this third part of our article on how to obtain finance, we look at the importance of research and how to pick the right lender to submit your application for finance.
Carefully Consider the Loan Application Form
A successful loan application sometimes is as simple as finding the right lender. Don’t lodge a loan application until you are confident that your loan application fits within their lending guidelines.
It is not unusual to investigate 3 or 4 Lenders before finding the right one. Make sure you consider both Banks and Non-Banks as sometimes the Non-Banks can provide a better deal for your circumstances.
10. Contact Information
Make sure you write the full correct name (and ABN or ACN and the current registered office, if applicable) as well as the full details of the nearest relative not living with you. If you have more than one entity and especially if you are using a trust to operate your business, always add a diagram explaining all of the entities, their roles and who are the directors and shareholders (and trustees). The trick is to make it as easy as possible for the lender to follow.
11. How Are You Going to Pay it Back? Do you have the Capacity and the Collateral?
When a Lender wants to know how they are going to get their money back (their exit strategy) – and you should give them an exit strategy. The first is almost always through the repayment schedule of principal and interest. The second and third may include the sale of some of the assets and or the sale of a property.
12. Answer Queries Quickly
Almost every application will have a set of queries raised by the Lender – this is normal. It is important that you answer the Lender’s questions as soon as possible. If it is going to take you more than 24 hours to answer a question, call them and let them know why.
13. Additional Information
While most loan application forms don’t allow for it, it is a good idea to attach the story or Business Plan to the application as it provides for a better overview of the transaction.
14. Statutory Forms
Every loan application has a statutory set of clauses to sign. Make sure that the correct person and/or officer signs the form; especially the formal loan application and the authority to conduct credit checks.
Understand How a Lender Reads an Application Form
15. Analyse How Much Debt You Have
In this case a Lender compares what you own to the total amount of money you owe. They do this by dividing the total assets by the total liabilities.
For example, if the total of all the things you own (assets) amount to $500,000 and all of the money you owe (liabilities) is $275,000 – the calculation is $500,000 divided by $275,000 which is 1.8 (this means you have 1.8 times more assets than liabilities), or a loan to valuation ratio of 55%.
The result they look for is 1.5 or higher and anything towards 2.0 is considered good. Different Lenders have different rules.
16. Interest Cover
This analysis refers to how much Profit (based on the calculation in point 5) there is to pay for all of the interest including the interest arising from the new loan application. This calculation is achieved by dividing the (adjusted) Profit by the new interest expense.
For example, if the adjusted Profit was $200,000 pa and your interest before the new loan was $80,000 pa and the interest on the new loan was going to be $35,000 per annum – the calculation is $200,000 divided by ($80,000 + $35,000 = $115,000) which is 1.7.
Usually this should be 1.5 but anything around 1.75 or higher makes your application all that much easier to get approved. Again different lenders have different rules.
Find the Right Lender
17. Brokers or Mortgage Specialist
Don’t be afraid of using a Broker, as they are in the business of looking for Loans every day and work on a success fee which is good for them and you. You might have to pay them a fee but this can be offset against a possible savings in interest rates. Make sure they are referred to you and that you interview them.
18. Keep Your New Loan On Track
One of the best ways to make sure you get the new loan is by making sure you properly comply with your old loans. Pay your interest and repayments on time; comply with your loan obligations and work on building your relationship with the lender.
Robert Projeski is the founder and managing director of Australian Mortgage Options, a leading independent mortgage/finance management firm based in Sydney, NSW, Australia. With a dozen of industry awards to their name, AMO have established themselves as a leading non-bank lender developing award-winning loan products that have been ground-breaking due to their more consumer benefit driven features than conventional loans. For product information and loan advise contact AMO on 133 266 or make a free appointment with a Mortgage Broker.