Apply for a business loan

Not what you’re looking for?

  • Choosing a loan you need
  • Improve your loan approval chances
  • Risk assessment

When applying for a business loan, it’s essential to prepare a detailed business plan and fully inform the lender about your proposed venture. This information helps the lender to provide you with the right type of finance and advice.

Deciding that your business needs a loan is only the first step. There are a number of things to consider before you approach a lender:

  • how much do you need to borrow?
  • what type of loan will you need?
  • how long will you need it for?
  • can the business afford to repay the loan, interest and any one-off or ongoing fees that come with the loan
  • what security can you offer the lender and how this affects the interest rate offered.

Online repayment calculators are a good tool in researching options but make sure you take the following into account:

Access to funds you borrow

If you need to access the funds on a semi regular basis to help with cash flow to keep the business operating while waiting for your customers to pay for goods, ‘at call’ loans such as an overdraft or line of credit are designed for this purpose. However, if you need the funds to buy a new business or equipment to expand your existing business you will need the funds ‘upfront’. This is also known as a ‘fully drawn advance’ and provides you with the entire loan amount all at once.

Loan terms

Loans provided upfront will need a portion of the loan plus interest paid back at regular intervals. The repayment amount will depend on the term or length of the loan. To determine the loan term suitable for your business you will need to calculate how much you can afford to service the loan. Be aware that the longer the loan term the more total interest you will pay. Loans that are at call have no fixed terms.

Ongoing funding

This is the average amount of an overdraft or line of credit that is used at any one time. For example, you may wish to have an overdraft limit of $20,000 to provide money for the occasional big expense, but usually you won’t use more than $5000 of that credit limit on average. So in this case $5,000 is the level of ongoing funding you need.

When applying for an overdraft limit, things to watch out for are:

  • higher the overdraft amount higher the fees
  • clauses where the lender can demand repayment of the whole loan at any time.

Fixed or variable interest rate

The choice of rate will affect the stability of repayments, overall cost of the loan and the loan features available. With a fixed rate loan the lender bears the risk of interest rate moves, while with a variable rate you will bear this risk. Ultimately, the choice of variable or fixed rates will depend upon how much free cash flow your business generates after you have paid all your expenses, including loan repayments. If your business has a low profit level, a variable rate loan repayment may rise beyond your ability to pay.

Loan security

Loans can be secured or unsecured by various types of assets, including residential, commercial, rural property or business assets. Alternatively, some loans are unsecured by any asset. Generally the less you provide for security the higher the interest rate will be. Be aware the lender has the legal right to seize any property or asset you offer as security if you can’t repay a loan on time.

There can be fees which can make a loan less attractive than it first seems. These include one-off fees such as establishment/application fees, exit/discharge fees and early termination fees or regular fees such as service fees or line/credit advance fees. The Business Loan Finder tool includes the cost of set-up and ongoing fees in the average monthly repayment to give you a better idea of the true cost of the loan.

Seek advice

The information provided here will provide you with a range of possible finance options. It is important to seek advice from your accountant or business advisers before approaching a lender for a loan.

Tip: Use our below Cashflow forecasting template to plan your cash flow and work out how much you need to lend.

Plan the business, plan the finance

Lenders will ask for a lot of in-depth information about the financial history of the business. It’s also important for you to create a convincing and detailed business plan which should include a profit and loss budget and cash flow forecast. The information you use to build your business plan may also be needed by the lender to assess your project. This includes both the past and future plans for your business, the people working in it and the market itself.

The outcome of your application is strongly influenced by how well your proposal is researched and how well it is presented.

Risk assessment

Banks and other lenders will look at your business’s risk profile when considering your loan application. Understanding what lenders look for and what they consider risky will help you present your business in a favourable manner.

As a general rule, lenders look for:

  • the level and nature of your security (what you’re offering to give them if you can’t repay the loan)
  • your ability to make regular loan repayments (cash flow risk)
  • your ability to ultimately repay the debt (business risk), including any other debts you might already have.

You need to be able to assess the level of cash flow or business risk in your specific circumstances. A projection of the cash requirements of the business is most important to a lender, as it is the actual cash left after expenses that will repay the loan, not income. It also shows you are an effective manager.

A lender’s perception of risk

The following factors can influence your lender’s perception of risk. If a number of these areas apply to you and your business you may need to consider another source of finance.

  • start up businesses incorporate financial, business and management risk
  • lack of security
  • lack of business history
  • industry sector, factors will include levels of competition, barriers to entry, profitability profile and current economic conditions
  • highly seasonal businesses, for example swimwear and agriculture. You’ll need to demonstrate how you’ll deal with cash flow pressures in the off season
  • lack of planning, market knowledge and finance skills
  • poor credit history.

Watch out! Before entering into a payment arrangement with the Tax Office, businesses should discuss this with their current or future lenders. Many businesses are unaware that entering into a payment arrangement with the Tax Office or other government agencies may adversely affect their current and future financing arrangements. For instance, a lender may not lend to a business if it is currently in a payment arrangement.

For more details visit the Guide to managing your tax debt on the ATO website.



How Do Small-Business Loans Work?

How do business loans work

A small-business loan can help get your business off the ground.

Related Articles

  • 1 [Business Loan] | How to Get a Business Loan From a Bank
  • 2 [Loans Work] | How Do Long-Term Loans Work?
  • 3 [Small Business Grant] | How to Apply for a Small Business Grant or Loan From the Government
  • 4 [Calculate Business Loan Payments] | How to Calculate Business Loan Payments

Small-business owners often need financial help to turn their entrepreneurial dreams into reality or keep an existing company afloat. If you need cash to purchase business equipment, fund your marketing campaign or cover your payroll, it may be necessary to take out a small-business loan. A small-business loan is different from other types of loans, and it’s beneficial to understand how the loans work before you apply for one.

Small-Business Lenders

You can get small-business loans from several sources, including banks, credit unions and online lenders. When researching potential lenders, it’s important to consider the interest rates that are being offered and the repayment terms that are available. If you need help qualifying for a business loan, the Small Business Administration offers numerous resources for business owners. The SBA does not extend loans to small businesses. It does, however, work with business owners to help them secure loan funding. If your business is relatively new or you don’t have substantial collateral, you may find it easier to secure an SBA-guaranteed loan rather than a traditional bank loan.

Application Requirements

The application for a small-business loan is exhaustive, and there are several pieces of information the lender may require. For example, the lender may ask about your previous experience owning or operating a business if you’re seeking a start-up loan. The lender also will expect you to explain in detail what the money will be used for. This is where having a well-written, detailed business plan can work to your advantage. A good business plan specifies the goals and mission of your business, makes projections about cash flow and profits, and outlines your marketing plan. In addition to information about the business, you’ll also need to provide certain personal information, including copies of your credit report and previous tax returns.

Repayment Terms

Your repayment terms generally depend on how much you borrowed and what the interest rate is. If you put up some type of collateral, such as your home, you may get a better interest rate than you would with an unsecured loan. You may be required to repay the loan in monthly installments or in one lump sum. When applying for a small-business loan, be sure to read the fine print to determine if you’ll be assessed any additional charges, such as a loan origination fee.

Considerations

You may be required to submit a personal guarantee to secure a small-business loan. The personal guarantee effectively says that if you can’t repay the loan, the lender has the right to come after your personal assets to collect what’s owed. Whether or not a personal guarantee is required typically depends on how old your business is, whether you have any collateral and your personal credit history. If you default on a small-business loan, whether it’s a bank loan or an SBA-backed loan, the lender could seek a judgment against you in civil court. The only way to erase a judgment is to pay the debt or file bankruptcy.



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Small Business Loans: How They Work and What You Should Know

How do business loans work

Small Businesses are increasing their payrolls, but hours worked and wages earned are down slightly. Photo: Reuters

For small business startups, knowing how loans work and getting them are absolutely crucial.

Many entrepreneurs, however, wait until the last minute to think about loans and prefer to dwell on grandiose plans, never mind that they often need loans to fund those plans.

Asking for loans is “unpleasant; it’s like asking your dad for the car keys,” said Charles H. Green, Executive Director at the Small Business Finance Institute and author of The SBA Loan Book.

Small businesses should start this “unpleasant” process early, however, partly because it could prove to be long and difficult.

One entrepreneur Green encountered secured his loan at the 60th bank he approached.

While this might be an extreme example, small business owners often need to try at more than one bank to get a small business loan.

During the process of dealing with a bank, moreover, they may be asked to provide additional documents they previously did not anticipate needing.

Green stressed that small business owners need to be patient in this entire process.

Banks Want Their Money Back

In making any small business loans, the goal of the bank is to get its money back. Even if the loan is made through the Small Business Administration (SBA), it is still a bank that ultimately risks its capital.

Banks usually get their money back from the borrower’s revenues. If that is not possible, banks can also get their money back from selling assets pledged as collateral or from the small business owners personally.

Therefore, besides documents relating to the business projections, banks may often request documents relating to the personal finances of the small business owner and whatever assets that can be pledged as collateral.

Backing up Projection Numbers

Regarding business projection numbers – that is, assessing the probability of repayment from borrower revenues – it is all about justifying those numbers, preferably with facts, said Green. For existing businesses, that may mean financial statements.

Some of the hard questions a lender may ask include:

*How many customers do you need?

*How do you find them?

*Who are satisfying these customers already?

*Why would they feel compelled to buy from you?

*What is your capacity to deliver those products?

*What is the cost to deliver those products?

Sometimes, the best efforts of small businesses to secure a loan are not good enough.

When rejections happen, Green recommended turning them into learning lessons. Often times, if the small business owner manages to remain calm and polite, he can get candid responses as to why he was rejected.

These explanations often turn into keys to successfully securing a loan from another bank in the future.

Choosing the Right Banks

Other times, though, a rejection from a bank has nothing to do with the borrower at all. That is, a lender may not have any money to lend.

Therefore, Green recommended that small businesses avoid banks under consent agreement with or issued a cease and desist order by the Federal Deposit Insurance Corporation (FDIC).

Generally speaking, smaller banks have more flexibility in their lending standards while bigger banks usually offer cheaper rates, added Green.



how to start a business

How to start a business

Imagine a life where all your time is spent on the things you want to do.

Imagine handing a letter to your boss that reads, “Dear Boss, I’m writing to let you know that your services are no longer required. Thanks for everything, but I’ll be doing things my own way now.”

Imagine that today is your final day of working for anyone other than yourself. What if—very soon, not in some distant, undefined future—you prepare for work by firing up a laptop in your home office, walking into a storefront you’ve opened, phoning a client who trusts you for helpful advice, or otherwise doing what you want instead of what someone tells you to do?

All over the world, and in many different ways, thousands of people are doing exactly that. They are rewriting the rules of work, becoming their own bosses, and creating a new future.

How to start a business

In The $100 Startup, Chris Guillebeau shows you how to lead a life of adventure, meaning and purpose — and earn a good living.

Still in his early thirties, Chris is on the verge of completing a tour of every country on earth — he s already visited more than 175 nations — and yet he s never held a real job or earned a regular paycheck. Rather, he has a special genius for turning ideas into income, and he uses what he earns both to support his life of adventure and to give back.

There are many others like Chris — those who ve found ways to opt out of traditional employment and create the time and income to pursue what they find meaningful. Sometimes, achieving that perfect blend of passion and income doesn t depend on shelving what you currently do. You can start small with your venture, committing little time or money, and wait to take the real plunge when you re sure it s successful.

In preparing to write this book, Chris identified 1,500 individuals who have built businesses earning $50,000 or more from a modest investment (in many cases, $100 or less), and from that group he s chosen to focus on the 50 most intriguing case studies. In nearly all cases, people with no special skills discovered aspects of their personal passions that could be monetized, and were able to restructure their lives in ways that gave them greater freedom and fulfillment.

Here, finally, distilled into one easy-to-use guide, are the most valuable lessons from those who ve learned how to turn what they do into a gateway to self-fulfillment. It s all about finding the intersection between your expertise — even if you don t consider it such — and what other people will pay for.

You don t need an MBA, a business plan or even employees. All you need is a product or service that springs from what you love to do anyway, people willing to pay, and a way to get paid

Not content to talk in generalities, Chris tells you exactly how many dollars his group of unexpected entrepreneurs required to get their projects up and running; what these individuals did in the first weeks and months to generate significant cash; some of the key mistakes they made along the way, and the crucial insights that made the business stick. Among Chris s key principles: if you re good at one thing, you re probably good at something else; never teach a man to fish — sell him the fish instead; and in the battle between planning and action, action wins.

In ancient times, people who were dissatisfied with their lives dreamed of finding magic lamps, buried treasure, or streets paved with gold. Today, we know that it s up to us to change our lives. And the best part is, if we change our own life, we can help others change theirs. This remarkable book will start you on your way.

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Our partner site, UnconventionalGuides.com, offers additional paid resources.

If you re looking to set up your first (or your tenth!) website, InMotion is easy and cheap. They ve agreed to offer a 50% off discount for all $100 Startup readers.

Starting in New York City and going to the ends of the earth, we ll be hitting all 7 continents with the message of The $100 Startup.

Chris is currently on tour hiatus while preparing for the World Domination Summit and completing a new book. More tour dates will be coming later this year!

If you represent a group, organization, or bookstore, you can also suggest a future tour stop.

You can see dates of previous stops on the list at the right or the map at the bottom.



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Business finance

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Medium to long-term business loans

We ve provided a list of those who can help if you re interested in taking out a medium to long term loan.

Commercial mortgages

Every question you have around commercial mortgages – solved

Business saving accounts

Just like a personal account, you can manage and save your financies to support your business

Asset financing

Financing for the things where your business needs it most

Short-term business loans

From helping with cash-flow to expansion costs, a short-term loan could be an option if your business needs a boost

Invoice financing

Often an ideal solution when in need of a instant cashflow-fix.

Business current accounts

Compare and find the best business current account to suit your business

Business credit cards

Facilitate staff spending and much more with business credit cards

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Business insurance

Ensure your business has the protection it requires

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Managing business expenses

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Guides

What are business loans

All you need to know about taking out a loan for your business.

What are business current accounts

The best way to keep your personal and business-banking separate.

Business savings accounts explained

All you need to know about taking out a loan for your business.

Peer-to-peer business loans

A loan that comes from individuals, as opposed to the bank. We explain how.

Invoice financing

How it works, and how it can benefit your business

What are business credit cards

Credit cards can be used as a way of managing staff spending and cashflow

Business finance in general

When it comes to managing your business finances, it’s not all that different from managing your personal finances.

The key difference is the fact you want to seek out products that are specifically designed for business use, as these will offer better rates as well as other features aimed at making running your business easier for you.

Who business finance is for?

Business finance is for any type of business, no matter how big or small.

You may want to think about business finance if you operate as a sole trader, or if you are a limited company – or if you are anything in between.

Who can apply?

Anyone who owns a business can apply for business finance, but you must remember that with some products, such as business loans, it may be difficult to get accepted in the current uncertain climate.

As a general rule, those businesses with the cleanest credit record have the best chance of getting accepted – and of getting the best rates.

What products are available within business finance?

There are a wide range of products available within business finance offered by numerous different banks and other financial organisations, including business current accounts, business credit cards and business loans.

Each product on offer in business finance has been designed with business in mind, and will help you to run your business operations more smoothly.

Why are we the best website for business finance products comparison?

If you’re looking for business finance products then you need look no further, as we compare hundreds of deals from different providers in one place to seek out the very best deal for you and your particular needs.

We offer a free and independent comparison tool, and also have access to exclusive deals on business finance products that you won’t be able to find anywhere else.



How to Finance Your Business

Businesses need financing for start-up costs or to fund expansions. Depending on your business, you have several options for raising the necessary capital. In addition to using your savings, the most common methods of financing are debt financing by obtaining a loan and equity financing by selling shares in your business. [1] However, there are other creative options, such as purchase order funding, crowdfunding, or using a credit card.

Steps Edit

Method One of Three:

Obtaining a Business Loan Edit

How to finance a business

How to finance a business

How to finance a business

How to finance a business

How to finance a business

How to finance a business

How to finance a business

Method Two of Three:

How to finance a business

How to finance a business

How to finance a business

How to finance a business

How to finance a business



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