Things to know before applying for a business loan

A business loan can help you with business growth, buy inventory, or manage cash flow for your business. But before you apply for one, you’ll need to work out which loan best suits you.

Here are eight steps worth taking before you apply for a business loan in Australia.

1. What is the loan purpose

Being clear on why you want to borrow is the first step to choosing the right loan and it’s one of the first questions you’ll be asked by a lender.

Common reasons for taking out a business loan include:

  • Managing your cash flow
  • Funding your growth
  • Buying a vehicle or equipment for your business

2. Work out the loan amount

If you’re looking to borrow to buy an asset, knowing the amount you need will be reasonably straightforward. However, if you’re borrowing to cover a potential cash shortfall, working this out can be a little more involved. 

3. Calculate how much can you afford to repay

The length of the loan will impact your repayment amounts. Your lender can outline the different loan term options in detail. But before you have this conversation, work out what you can afford to repay each month. You can do this by looking at your business’ past financials and completing cash flow forecasts.

4. Secured or Unsecured loan

You’ll usually be able to choose to have your loan secured or unsecured. Each has its benefits as well as considerations.

Secured

  • You offer an asset for the loan, such as property
  • The interest rate will usually be lower than unsecured
  • The lender may sell your asset if you’re unable to repay the loan

Unsecured

  • No asset is offered
  • The interest rate is usually higher
  • It can sometimes be more difficult to be approved for an unsecured loan

5. Choose a fixed or variable interest rate

As with other types of loans, you’ll often have the choice between a fixed or variable interest rate for your business loan. A variable rate may suit you best if you’re confident you can repay the loan even if rates increase. A fixed interest rate may be more appropriate and help manage your cash flow better by providing certainty with your repayments.

6. Understand the fees and charges

Make sure you understand the true cost of any loan by comparing all the fees and charges. Some fees you may be charged include:

  • Establishment or application fees
  • Ongoing monthly fees
  • Early repayment fees
  • Exit fees
  • Valuation fees (if you choose to secure your loan)

7. Get your paperwork ready

Preparing your business documents is an essential step that could help the lender make a decision sooner.

When applying for business finance, you (and any directors, partners or guarantors) may be asked to provide:

  1. Financial statements, preferably prepared by an accountant
  2. Proof of individual income
  3. Bank statements
  4. Identification

If you’re yet to start your business or have recently started trading and don’t have 12 months of trading history, there are a few extra things you may need to provide, including:

  • Cash-flow projections
  • Business plan
  • Business contract of sale
  • Lease agreement

8. Speak to an expert broker

Realloans broker can call you to discuss in more detail which business loans may suit you and answer any questions you may have.

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