ACCOUNTANTS LETTERS & DECLARATIONS
No matter what your bank manager tells you, they CAN approve your loan without us signing their declaration. We’ve seen it with our own eyes on many occasions.
What are accountants letters?
When you apply for finance, banks have limited ways to verify your income. If you are an employee, they primarily use pay slips, group certificates, and tax returns and largely those cannot be manipulated (as you are are not in control of the info on your pay slips, someone else prepares them). If you are a business, this is different. All figures come from you and you have opportunity to manipulate those to obtain a greater level of finance than you would otherwise get.
Banks know this, so they often want a declaration or letter from your accountant stating that what you are declaring is accurate.
This isn’t limited to just confirming income levels, and typically we get asked to sign things like:
- That past income is representitive of what your future income will be;
- That you will use an asset for a business purpose;
- That the loan is for a business purpose;
- That you have sought independent financial advice; and
- That you have the capacity to repay the proposed loan.
Why are they a problem?
If you think about the questions being asked of us by the bank, they will almost always:
- Be answered by your financial statements or tax returns;
- Be a question that is best answerable by yourself (for example, how is the asset being used or what is the loan money for);
- Be a question we can’t legally answer (such as whether you have the ability to service the loan); or
- Be a question that we can’t possibly know (for example, will future trading be similar to current trading).
Realistically, there is very little value we add to the process, so it begs the question, why do banks want our signature…
The bank is looking to hold us liable should the loan go bad.
As you can imagine, this isn’t an acceptable proposition for us, so signing these accountants letters isn’t something we will consider unless we are actually adding value to the loan application.
What can we sign off on?
We are more than happy to sign off on “factual information” (basically historical data that we can verify). That your income last year was $x, that your YTD figures are $x, and so on. Basically if we can verify that something is accurate, we are happy to sign off on it. As soon as the bank ask us to predict the future, or basically do their job for them, we are out.
But… we will need to do our investigations. We will take our time to ensure that what we are signing off on is accurate and we will invoice you an amount commensurate with the time we take in making that declaration and the level of risk that we are accepting by signing the declaration.
Almost always the bank’s template will not be acceptable, because their templates are designed to push the risk of you not paying your loan on to us. Their business is to take a risk in loaning money – they charge interest and (sometimes) excessive fees to compensate them for taking that risk – as you can hopefully understand, it’s not acceptable for the bank to push any of that risk on to us (particularly when they don’t share any of the income with us). Risk with no reward is a poor business decision.
We have our own templates and our own wording that is designed to limit the risk to our business, and we have to stick to those. We are happy to collaborate with you and your bank as to the exact wording, but we cannot allow our licenses, our reputation, our qualifications, and our families livelihoods to be at risk.
No matter what your bank manager tells you, they CAN approve your loan without us signing their declaration. We’ve seen it with our own eyes on many occasions. Don’t let them tell you otherwise, and don’t let them bully you and hold your loan to ransom because the bank doesn’t want to accept the risks of their own business.
Can we help new clients?
Unfortunately, we will not consider providing accountants letters for clients that we don’t have an existing relationship with. This is for a few reasons:
- Given the risk these letters present to our business, we need to be sure our client is honest and trustworthy before we consider providing these letters – we simply can’t know that for a new client;
- It is much harder to verify information for new clients, particularly when there are the time pressured involved with getting a letter done by a certain date; and
- Accurate financial statements require accurate historical information – and we don’t have any historical information for new clients.
If your bank won't help you?
Dump them… We have multiple contacts that can assist you in obtaining the finance that you need. Just let us know and we can put you in touch with someone that actually wants to help you.