For Unsecured Finance - What type of documentation is needed?

Bank Statements

Usually the last twelve months, and at least a minimum of six months of bank statements must be provided.

This allows the lender to assess your cashflow, including but not limited to:

Variety of income

If your industry is B2B (business to business) then the more clients you have the stronger your financial position is likely to be. The lender wants to be satisfied with your ability to pay back the loan with interest and continue trading even in the unlikely event there is an emergency or other setbacks.

Average balance

Managing your business finances is a big one. It’s also important for lenders to see you have a buffer of funds to make additional future payments, and can meet important financial obligations such as your quarterly BAS. Your application can be declined if this cannot be proven by assessing your bank statements, or the amount or conditions you can borrow may be diminished.

Deposits

Most lenders will require, or at least prefer, a minimum of four deposits per month to prove your income is stable.

Past Commitments

Insufficient funds. Those dreaded words. A lender will want to know if there is sound reason for a borrower’s insufficient balance with any dishonoured payments.

Most recent Profit & Loss Statement and Balance sheet

The P&L balance sheet, aged payables and receivables help the lender determine the financial health of your business.

Lenders will check total revenue for the period, gross profit (ie. gross margin), net profit before tax, and also the EBITDA. (earnings before interest, taxes, depreciation, and amortisation)

In simple terms, the EBITDA refers to your total earnings i.e. net profit before interest, tax, depreciation etc. And if your business is performing consistently over a number of years, you can likely afford to borrow the same amount as the EBITDA over one year.

Regardless of having a positive EBITDA, lenders rely heavily on your balance sheet when making a final decision as to whether they’ll offer you funding.

Personal and business credit records

Particularly when applying for unsecured finance, your credit score and history plays a vital role in determining your creditworthiness. An ‘excellent’ credit score will provide you with a much better shot at securing the finance you’re seeking, at a competitive rate.

Likewise, a low credit score from late or dishonoured payments or a poor payment history could make it difficult for the lender to view your financial situation positively.

Identification

You’ll likely need to provide a minimum of 100 points of ID for verification. It is always handy to have more than not enough. This can include a driver’s licence, passport, medicare card, or any other commonly used items that can significantly prove that you are who you say you are.

Guarantor’s Info

If you are lucky enough to have a guarantor as part of your application (not at all uncommon with unsecured finance) you’ll also need the same level of ID for verification as well as any supporting documents. The guarantor’s financial situation will also need to be determined by the lender in the application process.

Cash Flow Projection

Also known as a cash flow forecast, this is a detailed document or template that will often cover the previous twelve months, broken down into monthly columns. It shows your income and expenses, and can be used to predict the future performance of your business.

Other supporting docs

Any other documentation that can prove or add to the viability of your business being healthy and trustworthy financially, will help. This includes but is not limited to:

Business Plan

Strategy Plan

Sales Orders

Contract of Work

Agreements

Anything that can help add weight to your application and support your case for finance. Bear in mind, supporting docs will hold less weight than the main documentation (bank statements, P&L, cash flow projection) but of course every little bit helps.

Secured vs Unsecured - Documentation

Unsecured finance can be much faster and simpler to apply for, since it requires less paperwork. Although it can be harder to qualify for.

On the other hand, secured finance is known for a lengthy application process involving paperwork and valuations of asset collateral. Often this can drag out to months, although it may be worth going down this path if you have the assets - and time - both of which are important to your business!