Are you planning to expand your small or medium-sized business in Australia? Your first question might be, “How to get a business loan?” Let’s explore your options.
Do You Need A Business Loan?
Before we get stuck into how to get a business loan, it’s crucial to assess your financial situation and pinpoint if and why you would need a loan. Let’s assume you are a restaurant owner and you make the best meat pies in Australia. Most days you sell out of your meat pies by mid-day, you simply cannot keep up with the demand – fantastic!
Getting a business loan could provide you with the financial means to get that new upgraded oven that you always dreamed of. It would also help you increase your production and save on electricity bills.
You’ve run the numbers and it’s clear that this business loan would significantly boost turnover. The increased turnover would easily pay your monthly loan repayments and leave you with enough money to employ an additional staff member to attend to delivery orders.
In this example, it’s a no brainer – it’s a yes to getting a business loan!
Unfortunately, it’s not always so clear cut. If you’re considering applying for a business loan, it’s a good idea to first consult with a business accountant who can help you assess your financial needs accurately.
Understand How Business Loans Work
So you are confident that getting a business loan is the right choice for your business. But how does it work?
Getting a business loan is a great way to grow your business but keep in mind, you will need to repay the loan amount over a set period of time and you will be liable for interest. The interest rate may vary depending on a few factors. Some factors that a lender will consider when determining your interest rate will be, the financial stability of your business, the type of loan and the term of the loan.
As a simplified example, if you were to borrow $10,000 at an interest rate of 6.5% per annum, over a period of 2 years, you’ll end up paying back $11,300 in total.
Types of Business Loans
There are two main types of business loans you can consider: secured and unsecured.
Secured Loans
Getting a secured business loan requires collateral, such as property or equipment, which the lender can claim if the loan isn’t repaid. For example, if your meat pies business outright owns the building you operate from and you’re getting a secured loan, you might use your property as collateral. As a sole trader in Australia, you could secure the loan against your personal assets, such as your family home.
Unsecured Loan
This type of loan doesn’t require collateral, but it often requires a personal guarantee. This guarantee is a promise by you, the business owner, to repay the loan personally if the business can’t. You will also need to prove that you hold enough assets in your personal capacity to repay the loan.
Researching Your Loan Options
When you’re figuring out how to get a business loan, it’s important to consider the different factors that go into these loans. These include the interest rate, any fees associated with the loan, and the loan’s features.
For example, some loans might allow you to make extra repayments without a penalty, which can help you pay off your loan faster. This will help you reduce your debt and will save you on interest charges. Keep this in mind when getting a business loan.
You should also consider whether to apply for a loan from a bank or an online lender. While banks often offer lower interest rates, online lenders usually have simpler application processes and faster approval times. The key thing here is to read the fine print. Don’t open yourself up to unnecessary risk or get scammed by a fly-by-night lender.
Key Things Lenders Look For
When you apply for a business loan, lenders typically look at several key factors.
These include your credit score, your business’s financial history, your business plan, and any collateral you can provide.
They’ll also want to see proof of your ability to repay the loan, such as bank statements or cash flow forecasts. For example, if you’re applying for a loan to expand your retail store, you’ll need to provide a business plan that shows how the expansion will increase your profits and enable you to repay the loan. In your meat pies business, you could show the turnover generated from your meat pies, and forecast future sales based on the increased stock.
It’s also a good idea to have your bookkeeping in order, as lenders will want to see accurate and up-to-date financial records.
Applying For A Business Loan
Once you’ve decided on the type of loan and the lender, it’s time to apply. The application process typically involves providing financial information about your business, such as your profit and loss statements, balance sheet and cash flow statements.
You’ll also need to provide details about the loan you’re applying for, such as the amount and the purpose of the loan. For example, if you’re applying for a loan to purchase the oven for your meat pie business, you’ll need to provide an estimate of the equipment costs.
If you have a good credit score you can increase your chances of getting your loan approved and it will help you get a lower interest rate. Don’t forget to ask about the option to make additional payments on your loan without penalties.
Next Steps
Learning how to get a business loan involves understanding your needs, researching your options, and going through the application process. It’s a process that requires careful consideration and planning, but with the right approach, it can be a great way to grow your business.
If you need more personalized advice don’t hesitate to reach out to us at Allevi8HQ.
FAQs
What if my loan application is declined?
If your loan application is declined, it’s important to find out why so you can improve your chances of approval in the future. The most common reasons for getting declined include poor credit history, insufficient income, or inadequate collateral. For example, if your application was declined due to a poor credit history, then you should focus on improving your credit score before reapplying.
How much can I borrow with a business loan?
The amount you can borrow with a business loan depends on several factors, including your business’s income, the type of loan, your credit score and the lender. Some lenders offer loans from as little as $5,000 to as much as $5 million. For example, if your business has a strong income and a good credit history, you might be eligible to borrow a larger amount.
How to get a business loan to start a business?
When applying for a business loan to start a business, lenders will want to see a solid business plan, a clear credit history, and evidence of market research. They’ll also want to understand your industry experience and the potential profitability of your business.
