Getting the right business loan can give you the resources you need to achieve your business goals. The wrong business loan can cause extreme stress to you, as the business owner, and the business in general. The business lending landscape in Australia can be difficult to navigate, given the complexity of loan products and the variety of lenders. How do you know which lender is right for you?
Doing plenty of research and asking the right questions is absolutely essential. From the outset, you want to be sure you're working with a business loan expert who understands your business and your personal ambitions for the business. Make the most of this person's expertise by having your documentation organised and ready-to-go so that you can take advantage of opportunities as they arise and be on the front foot when you find the financial product that best suits you.
There are a few key things that every business owner should do before they apply for a business loan.
Check your credit score
Your credit score is an assessment of your credit worthiness and is often used by business lenders to assess your eligibility for finance. This can sound intimidating, but it's actually really quick, easy and free to check your score with services like GetCreditScore and CreditSavvy.
Your credit score is calculated based on your management of your finances. You can improve your credit score by paying your bills on time, understanding and abiding by your credit contracts, and ensuring your details are up-to-date. If you realise you won't be able to meet a repayment on an existing contract, be proactive. Call the lender and explain the situation, and tell them when you think you'll be able to make the repayment. Some lenders have procedures for these events, and they'll be able to explain the best way to go about resolving the issue.
Finding finance can be exciting; after all, it represents a massive growth opportunity for your business! However, don't forget to be selective when you're deciding which lenders to submit applications to.
Making a number of credit applications within a short period of time can have a negative impact on your credit score. This is known as 'shopping around', and indicates that you're applying for a number of different products.
This may seem counterintuitive on first glance. Many of us are accustomed to doing plenty of research before making significant financial decisions. We're not saying that you should curtail your research, but rather, you should be strategic in how you approach it.
The key thing to remember is: do plenty of research, ask plenty of questions, but only submit one application at a time. It isn't always possible to submit one application in total, but protect your credit score by minimising the number of times you apply. It pays to be prepared and to only submit applications to your preferred lenders.
Know your business
Okay, of course, you know your business! What we're talking about here is knowing your business in a way that helps you pre-empt the lender's questions about your business.
Lenders want to understand your business and your loan requirements. By providing clear and accurate information upfront, you'll be equipping them with the right information to make a decision.
Be prepared to answer such questions as:
- How much do you intend to borrow?
- What's your preferred repayment term for the loan?
- How has your business performed over the last month, quarter, and financial year?
- Do you have any existing loans or liabilities?
There is also a range of documents a lender will ask for in order to answer some of these questions (which we'll talk about in the next section).
Have your paperwork ready
Every lender has different requirements. Every application form will have some similar questions and some unique questions that are specific to that particular lender. At the very least, you can expect to provide:
- Business registration details
- Financial statements
- Tax statements
- Cash Flow Statement
- Balance Sheet
Some lenders may require you to provide an up-to-date business plan, whereas others may not. Most lenders will want to see your most recent business financials. Book an appointment with your accountant or business specialist and prepare these documents ahead of time. If you are asked for a document you don't already have, you'll be able to use the organised data to create it quickly. It can be time-consuming to collate these documents if your records aren't in order.
Avoid hidden fees
There are a few different fees and charges that lenders apply, and the fee structure can vary significantly between lenders. Some of the fees and charges to watch out for include early repayment fees, origination, and maintenance fees. Ask the lender for an upfront calculation of all the fees in a dollar ($) amount so that you can reference this sheet if there's any confusion down the track.
Reviewing your business' financials and funding requirements on a regular basis is essential for making sure your business is in the best shape it can be. If you're heading into a downturn or you've got a cashflow crunch on the way, the sooner you see it coming, the more prepared you're able to be.
Check your credit score, have your paperwork ready and be selective when it comes to submitting your application. If you need assistance making sure you're applying for the right loans, Valiant's team of lending experts can help. With the help of a specialist, you'll be able to reduce your research time and get back to running your business sooner. Give us a call on 1300 780 568 and help us learn more about your business.
Jacob leads the Working Capital team at Valiant. He is the go to guru for assisting small business owners with their everyday business finance needs.