NAB Business Demystifying Business Structures

1. NAB BusinessDemystifying Business Structures presented by: Charlie Falanga – Regional Business Executive Northern Territory February 2012

2. Approaching your Bank. • Does it matter what entity you use? • Sole Trader/Partnership. • Company in its own right. • Company acting as trustee for a trust. • From the Bank’s point of view it does not matter

3. Information Required.Irrespective of what entity you use to operate your business, some of the initial information your Bank will seek from you remains similar across all entities. • Copies of financial statements for the last 3 years (Balance Sheets and Profit & Loss Statements) inclusive of tax returns. • Cash flow budget for the next 12 months. • Copy of valuation on property that is being offered as security. (Bank can arrange this if you do not have it) • Plant and equipment register and values would help.

4. Information Required Cont. • List of aged debtors (30, 60, 90 days) • List of aged creditors (30, 60, 90 days) • A Family tree when one or more entities is involved • Business plan (in particular if you are a start up operation) • Basically this financial information will allow your bank you assess any loan requirement you may have.

5. So where do the differences kick in? • The differences relate in part to the documentation required to confirm the legal entity • In the case of a sole trader/partnership, provision of business registration certificate • In the case of a company, provision of the Memorandum of Articles of association • In the case of a company acting on behalf of a trust, a copy of the trust deed • The Banks also have different documentation requirements for each entity.

6. Documentation – Sole Trader/Partnership • Sole Trader and Partnership have the least documentation requirement. • The Borrower is the individual or individuals in a partnership and are directly liable for the debt. • Documentation is usually a mortgage over the asset being provided as security. • Letter of Offer is addressed to the individual/s trading as ?. • Very simply to set up.

7. Documentation - Company • The borrower is the company not the individual. • Mortgages are still taken over property owned by the company • Third Party Mortgages can be taken over property owned by the directors of the company • Directors provide personal guarantees (which also link mortgages provided by the directors to the company debt) • Without personal guarantees it is unlikely a bank will extend credit to the company • Mortgage Debenture is also taken to capture the fixed and floating assets of the company

8. Documentation – Company acting as trustee for a trust • Copy of the trust deed must be proved • The trust deed is vetted to ensure it has the power to e.g. borrow money, pledge the trust assets as security, enter into derivative type products such as fixed rate loans. • If any of these powers are missing the trust deed must be amended before a bank can provide funding. • All the security required for a company will also be taken but the documentation notes the existence of a trust and that the security is not impacted on by the existence of the trust • The Bank may also seek financial information on the trust beneficiaries if it believes necessary. • Some beneficiaries may also be asked to provide guarantees

9. Questions? Charlie Falanga Regional Business Executive Northern Territory