Due diligence is always a smart move in business and there are certain transactions that you should not enter into without researching the other party.
These transactions include:
- Commercial or retail leasing;
- Lending or credit arrangements;
- Hire/purchase or rental agreements; and
- Subletting or assigning of a lease.
To minimise your financial risk, you need to know if your proposed tenant or borrower is viable with good cash backup, business experience and cash flow.
What information do you need?
The most basic of the enquiries you should make include asking for:
- Personal identification;
- Tax returns;
- Bank account statements;
- Referrals and references;
- Clarification of business experience;
- Credit checks;
- Bankruptcy search.
If you’re dealing with a company, you need to know the identity of the directors and shareholders.
Companies have limited liability so consider obtaining a personal guarantee from the directors in transactions such as leases or loan agreements. A personal guarantee ensures that you can recover losses from the director(s) if the company is unable to honour its obligations.
However, sometimes it can be difficult and costly to enforce a personal guarantee so you may prefer to obtain a higher security deposit for leasing transactions. A security deposit gives you an easier way to access compensation if things go wrong but it may not cover the whole loss.
The approach you take depends on your individual circumstances but thinking about the risks and potential losses is an excellent catalyst for finding the time to do the necessary searches.
How to do company search and a bankruptcy search?
Two of the most common search portals in Australia are:
These search portals are available to search a large number of different registries, including AFSA (bankruptcy searches), ASIC (company searches), PPSR and land searches.
Generally, you register, pay a fee and then you can do any number of pertinent searches.