How Business-Purpose Lending Assessment Works

1. Start with the business purpose

Be specific about what the funding is intended to achieve. Common examples include business tax liabilities, a temporary working-capital gap, project mobilisation, equipment, inventory or an expansion initiative. A clear purpose helps an assessor connect the requested amount to the commercial outcome.

2. Show the repayment story

Repayment capacity is normally easier to understand when management can explain where cash will come from and when. That may involve recurring operating cash flow, contracted project receipts, debtor collections or expected trading performance. A forecast should identify timing assumptions rather than presenting an unexplained headline number.

3. Prepare current financial information

Useful information commonly includes recent financial statements, management accounts, bank statements, aged receivables/payables, existing finance commitments and details of material liabilities. The exact information required will depend on the transaction.

4. Explain existing obligations

Existing loans, leases, tax liabilities and security interests can affect the structure of a proposed facility. Disclosing them early makes it easier to assess available cash flow and security position.

5. Read the proposed contract carefully

ASIC notes that unfair contract term protections can apply to qualifying small-business standard-form contracts for financial products and services. A business should understand pricing, fees, default provisions, security and other important terms before signing and obtain professional advice where appropriate.

Sources and further reading