Before you apply, get your house in order
If possible, make sure your business doesn’t have any overdue or outstanding debts and ensure that all payments are made on time. Do the same for your personal finances. If you’re not sure how your credit rating looks, request a copy of your credit report.
Polish your business plan – if you don’t have one, prepare one
Your business plan should include:
- a business (or executive) summary
- a management (or operations) plan detailing how the business works
- a marketing plan describing customers, competitors, and strategies
- a business development plan outlining your future plans for the business
- financials – historical financial statements and cash flow projections
- supporting documentation to back up the above information
A good business plan will provide potential lenders with most of what they need to assess the risk of lending you money. You don’t have to start with a blank piece of paper though. Business.gov.au provides guides and templates for writing professional business plans.
Prepare a loan presentation, clearly setting out:
- how much money you are seeking – this may include expected average drawing levels and a maximum limit
- the type of loan – do you need a ‘fully drawn advance’ (all the money up front to make a purchase) or an overdraft or line of credit facility to draw on as required?
- your business’s ability to service the loan (pay interest)
- how long you expect to need the money and how you expect to repay the loan principal
- details of any security you are able to offer, or guarantors
Research potential lenders
- start with your current bank(s)
- check their websites to find out what loan products they offer and the terminology they use
- plan to approach several institutions to discuss your requirements
- Cash flow risk – ability to make repayments
- Business Risk – ability to repay the debt principle
- Security – collateral or guarantors of the debt
Remember, people lend to people
Your loan application will be assessed by a person and their subjective opinion of you counts, so:
- be on time
- dress to impress
- be organized and confident
- know your material
- be prepared to answer probing questions about your business plan
- be forthcoming – never appear evasive.
A ‘no’ can be valuable too
If they say no, thank them and ask for their reasons, then address the concerns they raised when you try another lender.
Just Starting Out?
Some banks offer micro enterprise loans to enable businesses to get started.
This is usually in the form of a credit card issued in the name of the business, (with an interest rate at the low end of credit card rates).
Your application will be assessed both in the context of your personal credit rating, and of your business plan.
Start by searching your bank’s website for ‘micro business loan’ or ‘micro enterprise loan’.
What are your thoughts?
Do you run a small business? Are you looking for finance expand it? Are you contemplating starting a new business? Is there anything else you’d like to know about small business loans?
Join the conversation — leave a comment below and let us know what you’re thoughts are.