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Things to consider before applying for small business loans

Things to consider before applying for small business loans

As a small business owner wanting to borrow money from the government, you will be asked by the IRD whether your business is viable or not.

This is an almost impossible question to answer as we are in genuinely new territory – no one knows what is going to happen. However, Beany felt it might be helpful to give you a self-assessment checklist to work your way through and, of course, we are here to help.

Additionally, we do not want clients to take out debt that they have no chance of paying back. By going through this checklist, you will give yourself a reality check and, if you decide to borrow, you will have insight into what you have to do to repay it.

Be aware of the ‘fish hooks’ in the loan as well. You don’t have to repay anything for the first two years, but when you do have to start repayments, if you miss one payment, you will have default interest of approximately 10%. That’s the 3% on the loan plus the IRD’s interest rate charge. They can also ask for it all back, if you miss a payment. So, only take this money if you believe you will be able to pay it back.

What sector are you in?

Tourism and hospitality will be the most strongly affected. If you are in these sectors, what are your plans to maintain your sales? What is your best guess for your future turnover for the next 24 months? Think about where your normal customers come from and whether you are likely to be able to attract new ones if you service the international market, for example. As best as you can, forecast sales by month for the next 24 months.

What are your costs to be in business?

What costs must you absolutely retain to stay in business? Most business people have spent the last year thinking about this question so forecast your business costs for the next 24 months.

What do you need to live on?

Take a look in your personal bank account and work out what you need each week. The last year has given us a taste of how much money we actually need to live on.

What cash and cash equivalents do you have?

Make a list of all your assets that are either cash or can be changed into cash, such as debtors, stock, even fixed assets.
The answer to this could well be nothing, that’s fine. But be honest with yourself about this question and the next.

What debt or ongoing liabilities do you have?

Make a list of all your debt, mortgages, trade creditors and other loans. What do you need each month to service your existing debt?

What are my plans to improve my business?

This is a good time to be thinking about how you can improve your business. There’s nothing like a crisis to generate new thinking and almost all of the most successful global businesses were borne out of huge recessionary events! So be creative, and make a list of the changes that you can do to give your business the best chance of survival.

Here’s a Rough and Ready Guide to Viability:

This is a great exercise to do for yourself – and we are ready to help you with the finer detail or to prepare a more detailed budget. You can also check out our webinar for more information on this.

And of course, if you are confused, stuck or want to talk over options please contact us.

Who are Beany?

We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant would. 

We have a dedicated team of remote accountants to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Get started for free today. 

Tess, Problem Solver

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Sue de Bièvre

Sue de Bièvre

Beany Co-Founder

An intrepid entrepreneur and feminist with a penchant for disruption; spotting problems and rolling her sleeves up to fix them makes Sue tick.

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