Last month we had a client come to us declined from a major bank. Something we see every week to be honest.
This case was a bit peculiar though, as our client was self employed and despite the business being run very well and making good income, the financials showed a small loss after wages, expenses and depreciation.This had caused the loan to be declined.
Our client was now stuck between a rock and a hard place, as he had already bought the land, and needed to build the family a home to live in. Without a loan, they were stuck!
Upon our assessment we noticed the business was growing rapidly, and the client could easily afford the debts he had, the trouble was the bank couldn’t pass the file for approval as a loss by the company didn’t meet policy guidelines. The tricky part was the bank he was declined at, in my opinion, was the one we were most likely to obtain approval through.
We spoke to the clients accountant and requested a review of the 2015 financials, it was possible that they could be re-worked to run at a profit. The accountant reviewed his business, and took into account materials and supplies which were for jobs not yet invoiced, this is called ‘work in progress’. The correct accounting treatment is to match costs to the same period income is generated. This is called the ‘Matching’ principle - in this case it worked to our advantage as it meant we could run 2015 as a profit. The accountant got us a new set of financials and returns straight away.
We also supported the application with a set of interim financials to show the business continued to run at a profit for the first 7 months of the current financial year, which always brings comfort to credit teams. Particularly where you are re-starting a financial year, they would want comfort that we are not robbing Peter (2016 financial year profits) to pay Paul (2015 financial year profits) !
From here, we re-submitted the loan for approval with the same bank and received it within 24hours.
So you see, we don’t always need a new lender, sometimes we just need a new perspective.
This case was a bit peculiar though, as our client was self employed and despite the business being run very well and making good income, the financials showed a small loss after wages, expenses and depreciation.This had caused the loan to be declined.
Our client was now stuck between a rock and a hard place, as he had already bought the land, and needed to build the family a home to live in. Without a loan, they were stuck!
Upon our assessment we noticed the business was growing rapidly, and the client could easily afford the debts he had, the trouble was the bank couldn’t pass the file for approval as a loss by the company didn’t meet policy guidelines. The tricky part was the bank he was declined at, in my opinion, was the one we were most likely to obtain approval through.
We spoke to the clients accountant and requested a review of the 2015 financials, it was possible that they could be re-worked to run at a profit. The accountant reviewed his business, and took into account materials and supplies which were for jobs not yet invoiced, this is called ‘work in progress’. The correct accounting treatment is to match costs to the same period income is generated. This is called the ‘Matching’ principle - in this case it worked to our advantage as it meant we could run 2015 as a profit. The accountant got us a new set of financials and returns straight away.
We also supported the application with a set of interim financials to show the business continued to run at a profit for the first 7 months of the current financial year, which always brings comfort to credit teams. Particularly where you are re-starting a financial year, they would want comfort that we are not robbing Peter (2016 financial year profits) to pay Paul (2015 financial year profits) !
From here, we re-submitted the loan for approval with the same bank and received it within 24hours.
So you see, we don’t always need a new lender, sometimes we just need a new perspective.
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