The Things You Need Before Applying for a Business Loan
One of the most common reasons for business failure is undercapitalization. Failing to start off with the right amount of money can severely hamper the operations and lifespan of a business. Depending on the type of organisation you are launching, insufficient funds can also limit the products and services you can provide and make it more difficult to become a healthy, revenue-generating business than if you had started with more money. But what do you do when you just don’t have enough cash on hand?
One of the most financially viable decisions you could make as an entrepreneur is to obtain a business loan. A good loan with favourable terms could ensure the healthy start you need for success.
While the advantages that a business loan can offer are evident, it can be challenging to navigate—especially for the uninitiated. To help you with your journey, we have created this guide for businesses and entrepreneurs obtain the capital they need for such a loan.
The typical requirements for a business loan
Credit unions and banks will generally require the following from a business owner applying for a prospective loan:
- Identification. Any person serving as a partner, owner, or investor in the business will need to validate their identity by providing appropriate identification. Bring your driver’s licence, passport, and whatever identification you might have. If any partners or investors will not be present, photocopies of their IDs might be required.
- Financial statements. If your business is already in operation and needs a loan to supplement a new phase in its growth, you will likely need to provide financial statements of previous accounting periods. Banks typically want to see your Balance Sheet, Income Statement, and Cash Flow Statement, going back for several years.
- Proof of personal income. Lenders will likely require the tax returns of anyone involved in your business. More often than not, this means providing two of your most recent tax returns and notices of assessment.
- Bank statements. Bank statements will be required for your business loan application, as will credit card statements, business savings statements, and so on.
- The business plan. New businesses and startups are often required to produce a business plan. It will take time, research, and effort to produce this document, but it will give the bank an idea of how you plan to repay your loans and handle your finances. The amount of capital needed and what the money will be allocated for are particular details of note.
- Collateral for secured loans. It is fully possible to obtain a loan that is secured with collateral in the form of high-value properties you might have. If you plan to do so, you will need to provide all the appropriate documents indicating ownership of the property and as much proof of its value you can provide.
What can affect my business loan application?
One factor that can affect your business loan application is your credit history. The worse your credit rating is, the less likely you are to secure a loan. As such, it is important to reconsider your spending habits and address whatever financial issues and grievances you might have long before you even think about applying for any sort of loan. This doesn’t just include debts, but unpaid or late-paid taxes.
Another factor is the lack of records in many businesses. Studies have shown that about 45% of small businesses in Australia do not use any accounting software to prepare and update their financial records. With this possible huge gap in the records of your business, you would have no proof that your business is profitable, let alone a viable investment.
Many people dream about starting their own business one day, but this is far easier said than done. One of the ways you could make things easier on yourself is to secure a loan. To do that, you have to fulfil all the requirements and qualifications. The greater your ability to convince a loan officer that your business is viable and able to turn a healthy profit, the more favourable terms you will receive. For best results, work with experts who can not only help you with your application but also present you with a lengthy list of potential lenders that may be suitable for you.
If you’re in need of a business loan to help kickstart your dream of being a business owner, apply today at Business Loan Experts. We help people’s endeavours become more financially supported by giving them the boost they need.