Many of you reading this article may already have a loan – whether a home loan or a business loan. You may have taken one out just recently since interest rates have been so low, or you may have taken it out quite some time ago, when you were on the first rung of the property ladder or when you established your business. Regardless of what position you are currently in, I’ll attempt to keep this article general enough that you will be able to apply the concepts to your situation when the need arises for you to seek your next bank loan.
So, how can you BEST position yourself to obtain a loan via the bank or any other financial institution? Read on…
Often, the first thing that the bank will look at is your credit history and your ability to service (pay back) the amount you wish to borrow. For that, you need to ensure you are aware of the following:
- Good credit history is made up of paying bills on time, having no late payments on your credit card, not going into ‘unarranged’/unexpected overdraft in your accounts, and not having payments ‘bounce’ back. Ensure you are maintaining good account behaviour and staying on top of your bills and payment.
*TIP: if you get paid fortnightly, set your bills to come out fortnightly, the day AFTER your pay. Often people get stung with late payment or overdraft fees when they don’t pay close enough attention to when their bills come out vs when they get paid their wages/salary etc. If you get paid monthly, then change to a monthly billing system, but ensure once again it’s a day or two AFTER you get paid. Lenders don’t tolerate clients who are not taking responsibility for their account behaviour.
- Watch out for new fancy ways of shopping via layby systems. These days, there are so many hooks to entice people to spend money and to have their products now and pay for them later, that its becoming the norm. However, as innocent buyers bite on that hook and obtain multiple laybys, (known as afterpay, humm, etc), they don’t realise how damaging this could be when you are trying to apply for a loan. As the lender goes back and looks at your history of spending for the last three to six months, they check for these type of activities too! If the behaviour is consistent, they must include those services as part of your monthly expenses. *BEWARE – Often, frequent layby activity can be a deal-breaker, as money put aside for layby shopping is resulting in negative servicing ability for the loan you are trying to apply for. So, the good general advice is to avoid layby facilities if you can, especially if you are getting ready to obtain a loan.
- Prepare your financial reports ahead of time and ensure they portray you in the best light – ie: that you are financially viable. Often clients go to the bank with a set of financials that don’t ‘read’ well for the bank. Their gross income or turnover may look fantastic, but when it comes to their NET income after expenses, it may be next to nothing, as all the gross income gets eaten up by various expenses. Certain expenses the bank will add back, such as home office use, depreciation and interest paid on loans. But if the overall financial picture doesn’t look good and there is very little ‘bottom line’ or net income, the bank is unable to use gross income for your loan application.
*TIP: You may need to take a bit longer to prepare yourself to approach a lender in order to get your finances in order. If you CAN wait in order to increase your chances of being approved, you may want to do so.
- Utilise professionals to help you obtain your loan. As a business owner, you may have a long-term picture in mind of where you are heading financially. But it’s important to sit down and crunch some numbers with a trusted adviser. Banks may have a dedicated business manager that looks after a certain group of clients, or you could approach a financial adviser and build a long term relationship there. They will understand your goals, be able to provide you with some recommendations and, just like you take your car for its WOF every year, financial advisers are there to help you monitor the health of your finances, fine-tune your financial choices and help you navigate back onto the right path when things don’t go to plan.
I hope these basic tips will give you a bit more confidence as you look to obtain your next loan, whether small or large. Keep in mind COVID-19 has changed a lot of things in many sectors, and finance hasn’t been left unaffected either. The best thing you can do for yourself is to get in early, get your ducks in a row and engage the professionals so that you get the outcome you want. But remember to be patient at the same time, as application processing is taking longer than usual. On this note, I will leave you with a parting quote from a famous political activist and screenwriter George Bernard Shaw: ‘Success does not consist in never making mistakes but in never making the same one a second time.’
You can find out more about how Zebunisso can help you here: https://www.mikepero.co.nz/zebunisso-alimova
*SIDE NOTE: Zebunisso also appears to be a time management ninja, so if you struggle with ‘the juggle’ ask her how SHE does it!