Top 10 Credit Tips

Top 10 Credit Tips

Here are the top 10 Credit Tips that will assist your business when applying for finance or refinancing.

• Start Early: The risk of not being able to refinance is placing many businesses of all sizes under intense scrutiny to demonstrate that they have addressed refinancing risks.

  Lenders now have less capacity to lend and a lower risk appetite, so it may take some time to effectively address the refinancing risk.
  

• Ensure your business is ready: It is important to ensure that statutory payments are up-to-date and payments to creditors are within expectations. Obtain evidence to demonstrate that tax payments, aged creditors listings, superannuation/pension provident fund contributions are in order.

  Make sure financial statementsreflect the trading position, and that you disclose any other information that may be relevant to a lender, including any pending litigation the business is involved in.
  

• Consider expert assistance: Given the current state of the debt market and that the fact many CFO's or equivalent may not have refinanced under such conditions before, a business with significant financing or refinancing needs should consider seeking help from external advisers.
  
• Spread the risk: Consider using multiple lenders to meet financing or refinancing needs. In using multiple lenders, you should have a number of lead lenders to reduce the risk of one lender withdrawing.
  
• Consider alternatives: With debt finance scarce and possible expensive, other options to finance debt need to be considered, such as a working capital improvement program, liquidating assets, raising new equity and changing strategic direction to reduce the need for finance.
  
• Be familiar with industry gearing standards: If your gearing ratio is high, it is likely to lessen the chance of accessing finance or refinancing (because of the lower risk appetite of lenders).

  Methods of reducing your gearing ration include liquidating assets, raising new equity or using spare working capital to pay down debt.
  

• Ensure all covenants can be met: Stress test your forecasts to see under what circumstances covenants may be breached. It is important to stay on top of covenants and act if you are close to breaching one.
  
• Maintain banking relationships: It is important to maintain a close relationship with your bank or finance lenders, keep the lines of communication open. Keep all lenders well imformed.
  
• Maintain governance: Make sure the board is fully aware of the issues and the risks around financing and refinancing, including the possible need to change the strategic direction to reduce the need for finance.
  
• Stay informed: Keep up-to-date yourself with the volatile and ever changing debt markets in order to assist in decision making on accessing financing or refinancing.

For businesses that take too long to recognise what is happening around them, the risks are enormous. Therefore, the Top 10 credit tips I have run through above will give you some idea of what you need to consider when attempting to gain additional finance for your business.


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