Small Business Loan Application & Tips

Part 2 – Real World Application

In part one we covered the political environment surrounding the banking system now and how this is affecting the banks internal systems and processes. In part 2 we will give you a client’s application start to finish and the problems the new systems have created.

Let’s break down an application we did for a client recently.  The client wanted a commercial construction loan and engaged us to help them with the financial projections, business plans and provision of financial information to the bank, there application was a multi stage application with initial funds sourced.

Initial talks with the bank went well, (This is going back a number of years, around 2016). Our primary contact was a local bank manager that sat us down spoke about their plans and was happy to get on board.

The client had cash, and a small loan as well, speaking to the branch manager they were told to pay off the loan as this would help with the loan application later. A seemingly logical suggestion.

This was the first communication issue that we ran in to. The problem came when they wanted to start construction, this was about a year later as they had to get new plans approved through council.

The banking manager that started the project had changed twice in that time and the new manager signed them up for a construction loan. The application was processed quick and straight forward, the person who had the query asked the question and the problems got resolved. Quick easy and logical.

But once they wanted to draw down, they were informed they need to pay for a stage before they can get the money, standard for an owner builder scenario. But contrary to how the original manager was structuring the loan.

A tough lesson to learn for a small business but they rolled with it, found the money and commenced construction. After finishing off the first stage, it was time to draw down and reclaim the money they had spent, this is when the second issue came about.

You see the bank had broken the loan draw down in to stages, not just the major stages but about 20 in total, meaning they had assigned different amount to different things, this breakdown wasn’t based on the estimates submitted, but the amounts assigned by the estimator. The bank did not make this information available to the client and wasn’t produced until they requested.

Finally, the building was complete, and it was time to borrow for the equipment and set up. Now we are in 2018 and the banking royal commission is now if full swing.

What at face value looked like an easy application took 5 months to processes.

Their banker now was at the head office in the city. Once she gathered the correct information, she lodged the application to credit for approval. Once lodged the application starting bouncing from department to department, one week it was legal, the next it was credit, each department had small changes to make, each change taking 2 to 3 weeks to fix as you could never get direct contact to other departments you would pass it through your manager which would take a few days to attend to , to the next department, who would take a few days, then back to manager a few more days then out.

The manager you were dealing with had zero power to make a decision, and every part of the application was approved and reviewed by another party. What we assume was a bank policy to have multiple sign off on loans to avoid people not following procedure. What this has done is made the loan application process extremely rigid and if there are any issues it bounces out straight away.

Finally, the loan got approved but not before one final complication. The bank realised they didn’t have copies of trust deeds on the file so after waiting months to finally getting approval they were then forced to wait another few weeks for funds while the bank reviewed their trust deeds to ensure they were legal, this was on a property that was already financed.

During the legal review they noticed the trust deeds weren’t executed properly. Standard trust deeds in Australia only have the place for one director to sign, so on a muli director trustee not all had signed. The client needed to organise a trust deed amendment in order to get the additional directors added to the deed.

Finally, in part 3 we will cover the lessons learnt and how you can save your self a lot of time and headache by having an air tight application that is not going to bounce around the bank. We will also give you tips of areas you need to review before you lodge an application.