Small business is the backbone of the Australian economy, employing nearly half of our workforce according to the latest Australian Bureau of Statistics figures. While each business is unique, what isn’t, is that at some point the majority will have a need for finance; either for the short or long term.
Just like applying for your home loan there are steps you can take as a business to improve your chances of having your small business loan application approved. In this article, we’ll explain what to do to successfully apply for a small business loan.
What should I do before I apply for a small business loan?
There is an old saying that you don’t get a second chance to make a first impression. It applies to any area of life, including a loan application! One of the main criteria a lender will assess you on in your application is your (or more appropriately your businesses) ability to make the necessary loan repayments. You need to demonstrate your ability to do this during the application process.
This requires you to be organised before you meet with your lender and to “sell” both yourself and your business to them. Your loan application preparation should include:
Writing your business plan if you’re a start-up operation (or updating it if your business is already up and running). This plan needs to tell the lender about your business, its competitive advantages and how your loan funds will be used. It should include realistic financial projections and budgets based on detailed market research for a start-up (or an existing business’s current performance).
A realistic self-assessment of how much you need to borrow for your business and how much you can afford to repay.
Ensuring you have all your business’s financial statements, business activity statements and tax returns up to date, if you are applying for a loan for an existing small business. Ideally, these should be prepared by an Accountant. You need to demonstrate that your business is financially sound and a low risk for the lender (e.g. that you have strong regular cash flow and you’ll be able to make your loan repayments).
Having performance reports (e.g. your business's KPIs) at your fingertips, if you have an existing established operation (e.g. gross/net profit and sales figures for the most recent financial year and prior year). This will demonstrate a trend in performance over time.
Identifying any assets you may be able to use as security against your loan. Most lenders will require some form of security, particularly if you have no or limited business experience. This security will usually enable you to get a lower interest rate on your loan. Property is the preferred form of security for most lenders.
Checking your credit rating. Your chances of having your loan approved will be much higher if you have a good credit history. You have a legal right to access your credit rating through credit reporting agencies such as Equifax. You also have the right to have any incorrect credit history information promptly corrected, as it affects your chances of any loan approval.
Researching the features of various small business loan products on the market (e.g. secured versus unsecured loans, overdraft versus line of credit facilities, fixed versus variable rate loans, and the interest rates available from different lenders), so you can understand the type of loan that you will potentially need.
As you can see, there are many things you can do to increase the chances of your small business loan application being successful. Effectively preparing for your application and collating the necessary supporting business documentation is crucial.
To help you find the best small business loan for your needs, Tomorrow Finance offers a business loan comparison and referral service. Working with Australia’s leading banks, we’re committed to helping Australian small businesses find the right financing option.
To speak with our experts, phone 1300 754 562 or contact us online. There’s no obligation and our service is 100% free!Back « Top Tips to Avoid Mortgage Stress.
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