There are few small businesses who won’t require additional capital at some point during their life cycle. But with so much information available, it is important to be prepared before you apply for a business loan. The line between success and failure can be as simple as knowing what to do to maximise your chances. Consider the issues below, and Funding Pro can help facilitate the right loan for you.
Fulfil your business requirements
The simplest way to maximise your chances of getting a business loan is to make your business successful. Lenders are not like venture capitalists. Instead, they prefer low-risk options to ensure loan repayments. When the success of your business does the talking, you are more likely to walk out the door with the loan you wanted.
The following areas of your business should be thriving to maximise your chances of getting a loan:
Cash Flow: Significant cash flow is required to repay a loan. This is especially true for short-term, unsecured loans. Lenders will review any existing loans and debts to determine how viable your repayment schedule is. This ties into the wider aspect of total revenue that lenders will prioritise highest.
History of trade: Rightly or wrongly, the duration of your business’s trade is a factor considered by your potential lender, with six months widely seen as a minimum. Lenders require confidence that you will make your repayments and knowing your history of trade can make this positive assertion. This means it can be difficult for a start-up business to secure a loan; however, if you want to use the loan to purchase assets like vehicles or machinery, the rule of six months is often relaxed.
Positive profit margins: It goes without saying that a healthy profit margin reflects positively on your ability to repay loans. If total revenue is the priority of lenders, a profit margin in the black runs a close second.
A diverse customer base: Business stability reflects greatly in any loan application. This means demonstrating a customer base that is diverse. A wide variety of sources contributing to your income makes it less likely that revenue will decrease if one demographic falls away.
Define your business plan
It is worth noting that a successful history of trade is not the sole prerequisite for a successful loan application. Demonstrating a well thought-out and measured business plan that projects future success can carry the same weight as proven past success.
When we go to lenders on your behalf, lenders will need a clear and concise sense of how you intend to use the funds and how, in turn, they will be paid back. It will help us if your business plan can demonstrate the following;
Why you are applying for additional finance: This is the groundwork for any successful loan application. This should communicate to your lender how the money will help your business grow. Be ready to expand on the use of funds. Will you use the loan to upgrade your equipment? To shore up your working capital? To help refinance current debt? Have the answers to these questions ready to go.
How the loan will increase your businesses income: Explaining the exact ways in which the loan will work towards a return on investment (ROI) will go a long way towards a successful application. Your business plan needs to help us to walk your lender through the process. Maybe replacing a piece of equipment would allow you to increase your efficiency and output. Realistic timelines better communicate to lenders how additional finance will benefit your business.
What form will the repayment take: A good business plan should outline the timeline of repayment to allay any fears on the end of your lender. Any evidence of debt repayment should be brought up. Include up-to-date sales reports – both monthly and yearly, as well as monthly expenses and relevant personal financial details to paint as vivid a picture as possible regarding your cashflow.
Check your credit score
Your credit score carries a significant amount of weight when applying for a business loan. Having said that, it is not time to hit the panic button if your credit score is not where it should be. However, it will form a core part of the lender’s decision so it should be treated accordingly.
Banks and lenders will obtain a copy of your credit score, both personal and business, before they make a final decision – so it is in your best interests to beat them to it and make sure it is as positive as possible. Under Australian consumer law, you have the right to obtain a copy of your credit score, at no cost, and to correct any incorrect information. If there is a mistake shown, contact the credit reporting agency and request a change. Alternatively, if your credit score does show legitimate late payments or defaults you should have the foresight to address these in your applications. Explain why those situations came about and how you plan on avoiding them going forward. Remember, being honest about your financial past is superior to omitting it completely. Lenders always find out the truth eventually.
Funding Pro can provide advice on how your credit score will or will not affect your business loan.
Know your negotiating position
Thinking that your application depends on your financial documents and business history alone is a quick way to rejection. While the lender exerts considerable power, knowing what sort of negotiating power you have can make all the difference. Funding Pro will act on your behalf to negotiate the best outcome.
Most banks will focus on your collateral. This is the security you provide to guarantee the loan. However, in many cases a small business will not be rich in property and may rely on alternative support. With more and more small businesses requiring loans to facilitate their growth, the issue of cash flow and revenue are equally as important as collateral. If your business has particularly strong trade or promising prospects, we’ll be pointing this out at the negotiating table.
If collateral is required, and this is especially relevant for larger loans, we’ll encourage your lender to look beyond traditional property and focus on other assets. Machinery, stock, debtors and intellectual property are all on the table in today’s small business loan negotiating arena.
FundingPro have a panel of more than 70 lenders and our team of dedicated business loan experts will help you find the best loan to suit your business in record time. Our transparency and integrity will facilitate you to make informed decisions about your financing options.
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