NAB’s executive for regional and agribusiness, Khan Horne, discusses what needs to be considered before applying for finance.

Whether you’re just starting out in business or continuing to grow an existing business, understanding the fundamentals of finance before applying is critical to success.

There are several key items to consider, and some fundamental information required for a lending proposal. Understanding your own cash flow, collateral, and equity will help both you, and the bank to understand the key drivers of the business.

The bank will assess credit rating, credit performance, financial disciplines and equity building activities, as this assists to inform on your ability to service and repay a loan going forward.

Over the last five years, we have seen an impressive transformation in the way businesses use information systems to assist with planning. Investing in good information systems and expertise to help model forward projections is just as valuable as investing in the right equipment if you’re farming, or the right genetics if you’re operating a livestock business.

Forward projections and assumptions are critical, and we spend a lot of time validating forward projections to ensure they’re achievable.

Make sure you’re keeping up to date with your business activity statements (BAS) every quarter. If you’re asked how the last six months have gone, you should be able to print out a report with that information.

Have a Plan A, B, C and D

Beyond the financial information, we want to know about your plans, experience and goals.

Every business needs a strategy and before you start off on that journey, be open and mindful of risks that may potentially arise, and what plans you’re going to put in place to mitigate their impact.

On-paper projections can be different to the reality on the ground. What is Plan B, C and D if things don’t go well and you’re facing challenges such as tough seasonal conditions, volatile market prices, or losing a key person in the business unexpectedly?

We are partners in business and part of our role is to be curious, challenge in a respectful way, and stress-test those plans to set you up for success.

For the next generation looking to apply for finance, it’s important to understand how to present your case to a bank manager, and to take the above fundamentals into consideration. Don’t be humble – talk about your experience and qualifications and build a trusted relationship with your banker.

Do your research on grants and funding support available with relevant government bodies such as the Queensland Rural and Industry Development Authority (QRIDA), and the NSW Rural Assistance Authority (RAA).

Communication is key

Some of the common mistakes businesses make when it comes to their finances include not maintaining their credit rating; overdrawing accounts; and not sustaining a close relationship with their bank or dedicated banker.

Regular communication with your bank or dedicated banker is absolute key – it’s important to keep them in the loop – they are there for you as one of your trusted advisors alongside others such as your accountant.

Early engagement is critical, the earlier we are engaged the better position we will be in to help. If something is not going to plan or is going sideways, pick up the phone and discuss your options.

Catch up with your banker at least every quarter so you can discuss results, plan for the next quarter and discuss future goals – short-term and long-term.

For more information, contact one of NAB’s regional and agribusiness bankers: https://www.nab.com.au/business/industry/contact-a-business-banker/regional-agribusiness-contacts