Annual Reviews – The Business Loan Pain Point

The annual review process for business loans in Australia is a crucial event to understand for business owners seeking to secure or maintain their business finance. An annual review determines the loan status and can potentially result in the negotiation of new terms or interest rates.

If your experience in business lending is limited to home loans or loans under $1M you might not have experienced an annual review before.  It can take time and cost to meaningfully engage with your business loan annual review and outcomes that can have a substantial impact on business cash flow, business growth, and loan conditions.

In this article, we will delve into the intricacies of the annual review process for business loans in Australia. We will include the factors that influence the process, to prepare for the review, and the impact it can have on your business.

Want a business loan that’s a set and forget loan without annual reviews?  They exist – get a quote here.

What is an Annual Review?

An annual review is a periodic evaluation of a business loan.  The review process typically involves a review of financial performance, loan repayment, and overall loan conditions. Lenders will assess the risks associated with the loan and determine whether the terms and interest rates should be adjusted or, in severe circumstances, if your relationship with the lender needs to end. This process can be time-consuming, and requires careful preparation, as the outcome can have a significant impact on a business’s future.

 What’s involved in the Annual Review Process

The lender will seek to understand your business’ financial health by reviewing reports and understanding the health of your cash flow.  There may have been conditions attached to your business loan at the time it was offered and the lender will seek to understand if these have been maintained. 

Some of the reports that may be requested in your annual review include:

•  Profit & Loss
• Balance Sheet
• Tax Returns
• Current Aged Payables and Receivables
• Your ATO portals
• Valuations of the security properties

How to approach your annual review after a period of poor results

If business performance hasn’t been maintained to the level required, you should be open about this.  Talk to the reasons your business results have been less than expected and set out the mitigating factors along with realistic projections into the future using a realistic cash flow forecast.

Do not mislead or try to hide issues within your business – this could seriously damage the relationship with the lender and have serious consequences. An open and honest approach can build trust and will be much better received to improve your cash flow forecast in the long term.

What can be the outcomes from a business loan annual review?

Keeping in mind the purpose of an annual review is to assess your business performance and assess a level of risk, in real terms the outcomes are:

1.     Credit could continue to be extended,

2.     there could be changes to your loan, or

3.     you could be asked to pay out or refinance your loan elsewhere.

If your lender is happy with your business performance and the valuations of the security property it could be an ideal time to negotiate better rates and terms. 

If business performance hasn’t been as strong as hoped you could see more frequent monitoring occur.  In the event property valuations have decreased, you could be asked to provide additional security or pay down the loan so it’s within a loan to value ratio the lender finds acceptable.

On some occasions a lender will no longer wish to extend credit and you may be asked to pay out your loan or refinance your loan elsewhere.  This can be a stressful and difficult experience for business owners.

Are there business loans without annual reviews? 

Typically annual reviews apply to business loans over $1M in value but there are a number of lenders offering loans without annual reviews. 

Some of the loan types available without annual reviews include:

•  Commercial Property Loans
• Caveat Loans
•  First and second mortgages
• Unsecured Loans
•  Unsecured Overdrafts
•  Equipment Finance
• Invoice Finance and other cash flow finance solutions

If you have a loan that’s currently subject to an annual review process and you’d like to change to a loan without annual reviews you can talk to an expert here.

Should you seek help with your annual review?

The annual review process for business loans in Australia is an event business owners should prepare for, as the outcomes can have a substantial impact on their business and financial future.

We recommend you understand the factors that influence the annual review process including your loan repayment history, if your loan conditions are being met, business cash flow and reporting information that’s accurate and delivered in a timely manner.

It’s important to approach the review process with honesty and transparency, as misleading or hiding issues within the business could damage the relationship with the lender and lead to serious consequences.

If you’re not confident, seeking assistance from a financial professional can also help. For those seeking a set and forget loan solution, options exist in the market for business loans without annual reviews. As always, take the time to understand your options completely before taking action and seek a financial professional for expert help if you need to.