Introduction: Why Preparation Matters for Small Business Loans
Applying for a small business loan is a significant step for any business owner, and being well-prepared can make all the difference. Preparation not only increases your chances of getting approved, but it also helps you secure the right amount of funds to support your business goals. A thorough business loan application shows lenders that you understand your cash flow, can manage existing and proposed repayments, and are committed to the long-term success of your small business. By taking the time to prepare, you’ll be able to present a strong case to lenders, making it easier to access the loan you need to keep your business running smoothly and growing. In the following steps, we’ll guide you through the essential actions to take before you apply for a business loan, ensuring you’re ready to approach lenders with confidence.
Step 1: Review Your Financial Statements
Before you apply for a small business loan, it’s essential to take a close look at your financial statements. These documents—your income statement, balance sheet, and cash flow statement—give a clear picture of your business’s financial situation. Lenders rely on these statements to assess whether your business can repay the loan, so accuracy is crucial. Reviewing your financial statements allows you to spot any inconsistencies, identify areas where you can improve your cash flow, and make adjustments before submitting your business loan application. By ensuring your financials are up-to-date and reflect the true state of your business, you’ll not only boost your chances of approval but also gain valuable insights to help you manage your income and expenses more effectively.
Step 2: Create a Solid Business Plan
A well-crafted business plan is a cornerstone of any successful loan application. When you apply for a business loan, lenders want to see that you have a clear strategy for your small business, including how you plan to use the loan funds and how you’ll repay them. Your business plan should outline your business objectives, target market, competitive advantages, and detailed financial projections. It’s also important to explain how the loan will help your business grow and how you’ll manage repayments. A strong business plan not only reassures lenders that you’re serious about your business, but it also serves as a roadmap for your own success, helping you stay focused and on track as your business evolves.
Step 3: Gather All Necessary Documentation
Having all your documentation ready is key to a smooth business loan application process. Lenders typically require a range of documents, such as financial statements, tax returns, and bank statements, to assess your business’s financial situation and creditworthiness. You may also need to provide additional documents like your business plan, identification, and information about your business structure and business partners. If you have existing loans or credit agreements, be prepared to share those details as well. Organizing these documents in advance will help you respond quickly to any lender requests and demonstrate that you’re a responsible and prepared business owner, increasing your chances of securing the loan you need.
A lot of entrepreneurs struggle when trying to figure out how to get a small business loan. With these five tips, you’ll improve your chances.
Do you know how to apply for a business loan?
It’s a question that trips many new entrepreneurs up. Having never dealt with the business arm of a bank before, you may not realise the requirements they have to secure a loan.
Many entrepreneurs seek business loans to access funds quickly, especially when cash flow is tight.
This can lead to rejections, which makes it even harder to get a loan.
Of course, you don’t want that to happen. A small business loan can do wonders for your business, as Michael Baker discovered:
Michael is the latest in a six-generation line of decorators based in Queensland. He found himself in need of funds after several builders delayed payments for work he’d completed.
In need of extra funding, he applied for a small business loan. Fast access to funds was crucial for stabilising his business.
The loan allowed him to stabilise the business during a difficult time. And after a period of decline, he’s managed to start growing his business again with the hiring of two new people.
Business loans can be essential not only for overcoming cash flow issues, but also for growing your business or starting a new business.
Failing to figure out how to get a small business loan would have meant the end of Michael’s business.
Maybe you find yourself in a similar situation. If so, you need to get your application approved quickly so that you can move forward.
These are the five tips that will help you do it.
Tip #1 – Know the Reason and Amount Ahead of Time
The reason for the loan is one of the first things that a lender will want to know when you apply.
You need to provide a specific reason and prove that you’ve calculated an accurate figure for resolving whatever issue that you have. When calculating the amount, consider how much you need to borrow based on your business finance requirements, ensuring you have enough funds to meet your goals without overextending.
Failure to articulate what you need the loan for may lead to a lender concluding that you don’t really need it.
Furthermore, it means that you don’t know what to do with the money should you get it.
Sit down with your team and outline the specific problems you want to solve. Have a plan of action in place so that you can present it to a lender. Common reasons for getting a small business loan include:
- Solving cash flow problems, as was the case for Michael.
- Purchasing equipment or inventory for your business.
- Funding further growth.
- Obtaining working capital to support daily operations.
Prepare a presentation ahead of time that wraps up your reason for the loan into a wider business plan. The goal is to prove that you’re not a risk and that the loan substantially benefits the business. Make sure the loan you apply for suits your business’s specific requirements and cash flow needs.
Tip #2 – Examine the Potential Expense
You can usually work out approximately how much a lender will ask you to repay over a set amount of time. Many lenders even provide calculators on their websites to help with this. The loan term, which is the period over which you repay the loan, will affect the size and frequency of each payment you need to make.
It’s crucial that you look at the outgoings when working out how to apply for a business loan.
Your goal is to figure out how much you can comfortably afford to repay each month, taking into account the regular payments required over the loan term.
A loan with a short term and low interest rate may seem appealing at first. But that short term also means higher repayments. Make sure you can pay each installment comfortably throughout the loan term. If you can’t afford them, you put your business in jeopardy.
Examine your cash flow forecasts so that you know what you can afford. Use that information to decide on an appropriate term and to figure out which lenders can’t help you.
Tip #3 – Be Transparent At All Times
If you’re in difficult financial straits, it can feel tempting to hide your situation from lenders.
This is a mistake and it’s not how to get a small business loan.
Many lenders will want to examine your business documentation before approving your application. Financial statements generally consist of documents detailing your assets, liabilities, and income, such as a balance sheet, income statement, and cash flow statement. Lenders may also require documentation related to any asset used as collateral for the loan. In addition, documents from the Australian Taxation Office, such as business activity statements, may be required. If your business involves trusts or self managed super funds, you may need to provide additional documents to demonstrate financial position. Start ups may be asked for extra documentation due to limited trading history or more complex business structures. They’ll also conduct their own checks into your credit history and the company’s viability.
Make sure you maintain accurate books that you can present to the lender as needed. Be completely honest about your situation. Remember that a lender will likely refuse your application if they feel that you’re hiding something.
Tip #4 – Review Your Credit Score Beforehand
As mentioned, most lenders examine your credit score during the application process. A credit check is a standard part of the business loan application process. If you have a bad credit history, trying to figure out how to apply for a business loan may not help.
You need to fix the issue first.
There are several services that allow you to view your credit history. These include Equifax and Experian.
Make sure you know where you stand before you apply. If you have a bad credit history, it’s worth taking steps to improve your score first. Remember that failed loan applications often get registered as black marks on your credit score. This can create a vicious cycle where every rejection worsens your score, which makes it even harder to apply for a loan.
Tip #5 – Understand the Fees
Sometimes, a loan may look like a good deal based on the marketing.
But when you find out more about it, you discover that there are several fees attached that could hurt your business.
It’s crucial that you examine the fine print and quiz the lender about any additional fees. Working out how to apply for a business loan isn’t just about improving your application.
It’s also about ensuring you choose a loan that works for your business and understanding how a business loan can affect getting a mortgage.
There are several potential fees that you need to look out for. These include the following:
- Establishment fees.
- Exit fees.
- Fees for early repayment.
- Any monthly fees that the lender may charge.
Some business lenders may have different fee structures compared to other lenders, so it’s important to compare their terms carefully. If you are considering a line of credit, remember that you can access funds up to an approved limit, and additional fees may apply if you exceed this limit.
It’s also worth looking into the penalties for late repayments to ensure they’re not especially large.
Explore Your Business Loan Options
Once your financial statements, business plan, and documentation are in order, it’s time to explore the different business loan options available to you. There are a variety of business loans to consider, including secured business loans, unsecured loans, and equipment finance, each with its own eligibility criteria, interest rates, and repayment terms. Take the time to compare loan options, looking closely at factors like monthly fees, credit checks, loan terms, and the type of finance that best suits your business needs. By researching and understanding the different loan types, you can choose the option that offers the best balance of flexibility, cost, and access to funds, ensuring your business has the support it needs to grow and thrive.
Work With a Lender Who Wants to Help You
There’s one final tip to consider when thinking about how to get a small business loan.
Find a lender who wants to help you. If you are an existing customer, you may benefit from a faster application process or special terms, as some lenders streamline procedures for those who have previously used their services.
That’s exactly what Unsecured Finance Australia offers. We offer unsecured business loans of up to $300,000. Some lenders also provide a line of credit as an alternative to traditional loans, which can help businesses manage cash flow more flexibly.
And you don’t have to worry about how to apply for a business loan with us. You can apply via our website in a matter of minutes and we make it as simple as possible for you.
These solutions are designed to support businesses at various stages of growth.
Are you ready to get started?
Apply for an unsecured business loan today and receive a response within 24 hours.
