Regardless of what industry you are a part of, there is one thing that all businesses need at some point: capital to keep things running. Whether you need it to fund through a downturn or purchase equipment for your business, a business loan can help you get ahead and achieve your goals. You need to do two important things before you start searching for available business loans and applying for them. One is to be prepared, two is to do your homework. Now that you know, here are five essentials steps on how to secure a business loan.

  1. Understand the purpose of your loan
  2. Make sure you understand your finances
  3. Prepare a business plan
  4. Research your options
  5. Have your documents in order

The following will break down each of these steps:

1. Understand the Purpose of your Loan

The first step on how to secure a business loan is knowing why you want to borrow a loan that is right for you. It will also be the first question a lender may ask you. Having a clear intention of how you will plan to use the fund should be conveyed in your business plan.

Common reasons for taking out a business loan include:

  • Purchasing a vehicle or equipment for your business
  • Managing cash flow
  • Funding growth
  • Resolving short-term problems

2. Make Sure you Understand your Finances

Having access to finance can give your business a huge boost – but you need to be able to meet your repayment obligations. You should have a basic understanding of your finances, even if you do not prepare your own financial statements. You need to know what is a reasonable amount to borrow and ensure you can confidently service the loan into the future. When deciding on how much you should borrow, make sure you consider:

  • The terms and conditions of the loan
  • How long you will need to pay it back
  • How much you can afford to pay back monthly

Re-evaluate your financial situation and decide whether you can realistically repay the loan. Keep in mind that there are also other fees to worry about.

3. Prepare a Business Plan

Most lenders will want to see your business plan before they agree to give your business a loan. As a business owner, you need to have a business plan that includes all your goals and achievements for your company. The plan should comprehensively outline:

  • The specifics of your business (location, legal structure, etc.)
  • Your business goals and achievements
  • Any marketing plans you have
  • Competitor and market analysis
  • Cashflow forecasts
  • Profit & Loss statement, budgeting and balance sheet

If you are meeting with a lender that you are interested in working with, ensure that your plan is tailored to that lender. It can help speed up the process and enhance your chances of getting approved.

How to Secure a Business Loan

4. Research Your Options

There are many business loan types, but you will usually have to choose between having your loan secured or unsecured. Both have their benefits as well as considerations. You should know which loan options would best suit your business needs. Lenders will have their suggestions, so be prepared to have a constructive conversation.

Secured Loan:

  • You offer an asset for the loan (property, vehicle, etc.)
  • The interest rate is usually lower than unsecured
  • The lender may sell your asset if you are unable to repay the loan

Unsecured Loan:

  • No asset is offered
  • The interest rate is usually higher
  • It can sometimes be much tougher to be approved

Be aware of the Terms & Conditions

Before signing the contract, make sure you are aware of any clauses that could influence your business or future borrowing capability. Be on the lookout for default clauses buried in the fine print that:

  • List any ongoing maintenance and repair costs, annual fees or charges that you will need to pay on top of your loan payments
  • Allow the bank to demand you to repay the loan all at once if you miss a payment
  • Tell you what you can and cannot do with secured property

5. Have your Documents in Order

Applying for a business loan can be a long and drawn-out process of research, gathering information and waiting for the banks to get back to you. Financial providers have specific records requests. Providing these documents helps them understand your business’s financial situation, so make sure you provide them with the necessary paperwork. Doing this can help speed up the process and heighten your chances of getting approved. You may be asked to provide:

  • Financial statements (preferably prepared by an accountant)
  • Your Australian Company Number or Australian Business Number
  • Proof of individual income
  • Bank account statements and tax records
  • Identification (driver licence or passport)
  • Your business plan outlining how you will use the funds

Before applying, it is worth taking time to meet with an accountant to craft a solid cash-flow prediction and budget. Doing this can help you work out the cost-benefit scenarios for different loans.

Regardless of the loan option you choose, make sure you review everything carefully before applying. And finally, keep on top of your payments as the loan term progresses so that you can continue to keep guiding your business in the right direction.

All of this can seem overwhelming, especially if you are a small business looking to expand. If you are still unsure, you can speak with one of our financial advisors here at BUSINESSNAV. Our advisors are here to help you find the best finance options for your business – we are here to work with you to prepare your loan application and give you the best chance of receiving approval. Contact us via the form below to get in touch with one of our advisors today: