Applying for any type of loan is a significant financial activity that should not be taken lightly. When applying for a business loan, follow these steps to make sure you research all of your loan options, as well as anything that may affect your personal financial situation or the business during the application process.
1. Assess your eligibility
There are many factors that influence a lender’s decision to offer your business a loan. So, before starting the application process, check your eligibility and see if you can clear any hurdles proactively. Some of the key factors that can affect whether you qualify for a business loan are:
Annual turnover: Lenders assess cash flow to see if the business is generating enough revenue to cover loan repayments and usually require you to meet a minimum annual profit (this varies between lenders and borrowers). Financial statements and sales records are used to show this information.
Purpose of the loan:- Most business loans cover a variety of financing, from payroll to the purchase of business equipment. But some lenders focus on specific industries, such as agriculture or healthcare, so you may want to explore options specific to your business.
How long have you been working? Often, you need to work for a certain period of time before lenders will accept your loan application. This can be for six months or it can be up to a few years.
business and personal records; This includes everything under the financial sun, from personal or business debts to any legal matter in which you or your business is involved.
2. Get your credit score in good shape
Your personal credit score can affect the outcome of your business loan application. While you can’t erase every late mortgage payment or loan application from your credit score, you can fix the mistakes and make sure you’re in good standing. You can get free access to your credit score every three months to check for any issues and contact a credit reporting agency to update them.
It is also wise to pay off as much debt as possible before applying for another loan. This shows lenders that you are a responsible borrower and can also tip your credit score into a higher band.
3. Know your financial limits
There is no point in applying for a $500,000 loan if your business is not in a position to cover the repayment costs. After evaluating your eligibility and personal financial situation, you should have a better idea of how much loan amount you can comfortably afford.
4. Research and compare business loans
You need to assess what type of loan would be best for your business needs – secured or unsecured and fixed or flexible – and what features, fees and (estimated) interest this comes with. Once you’ve settled on a loan type, it’s time to see how different banks and lenders compare in these situations.
5. Organize and apply your paperwork
Application processes can often be started online and are not the arduous application process of decades past. However, there are still various documents that lenders will require you to provide from the start. This includes:
- Your driver’s license or other identification to prove your identity
- Your business’s ABN (Australian Business Number)
- Financial documents such as bank statements, tax returns, and projected cash flow for the business (and possibly your personal finance documents)
- A business plan on how you plan to use the money
6. Wait for a response
This may take a few days or several weeks, but be patient. It is not advisable to apply for multiple loans as each application will be reflected on your credit score. Multiple applications, especially unsuccessful ones, can hurt your credit rating, which can affect your eligibility for a business loan down the road.
If your application is successful, it’s time to read the paper and make sure you’re happy to proceed.
