Suppose you’re eager to elevate your enterprise to the next stage, congratulations! Before you can begin creating your dream into an actual reality, you’ll require funds to fund your company.
It could be intimidating or challenging to get an enterprise loan; However, you’re not alone. According to a report from 2016 by ABS, around half of small companies have a business credit facility apart from credit cards. According to ABS data, by 2024, the value of fixed-term loans made for small businesses totaled more than $36 billion.
If you’re an entrepreneur who wants to be an Elon Musk, or your cafe is flourishing and eager to grow the business, a business loan may help. However, just like every other credit, there are specific steps you’ll need to follow to be successful in obtaining the loan for your business.
An overview of how to get a business loan
Before you start purchasing equipment or hiring new employees, it is essential to secure the funds. Let’s review how to go about it. You need to do eight things before submitting the business loan.
1. Determine your budget
Before you decide on how much you’ll need to borrow, determine your financial situation, and then you can figure out how much you will need to fund your business.
It’s crucial to comprehend your current income, net profits, expenses, and any forecasts for the future before submitting a request for business loans. One way to obtain the most accurate picture of your financial situation is by creating an accounting of cash flow, as per business.gov.au.
It is essential to know why you’re taking out the loan to fund. According to CommBank, there are various most frequently used reasons for taking business loans: managing cash flow, financing expansion, or purchasing an automobile or other equipment for your business.
Whatever your reasons, it is likely that you’ll be asked about your application. It’s therefore essential to work all this out before you click “apply.”
It’s also possible to look over your finances. Many lenders will look up your credit score and may ask you for business activities statements (BAS) that indicate your trustworthiness as a lender. Check your credit report to determine your credit score so that you are aware of your options.
2. Find out how much you’ll need to take out
From this point, you need to determine precisely what you’ll need to pay. Estimate the costs of the venture. This should be easy based on what you’re planning to do. Also, be sure to only apply for the loan you can be able to. In evaluating the application, the lender will use their due diligence to make sure that you can pay the monthly payments, which you can do as well. There are a myriad of online calculators for repayment that you can employ to figure out if the amount you’re requesting is going to be affordable.
3. What kind of business credit would you like? Secured vs. Unsecured
Before you begin researching your choices (step five), it could be beneficial to determine what type of loan you’ll be applying for, whether it’s a secured or unsecured business loan. Secured loans require an asset to serve as security, while unsecured loans don’t.
With an asset as collateral, secured loans usually have lower interest rates. However, you’ll need help to pledge as collateral. However, they do come with the risk of a higher level of risk. If you cannot repay the loan, the lender can take over your company’s assets. In exchange, secured loans usually have less interest.
4. You can choose between the fixed or variable rate of interest
Another way to narrow your search is to determine the interest rate you’d like to pay for the loan. In essence, the term “fixed interest rate” means that it is fixed, meaning it isn’t subject to fluctuations for a predetermined duration period. Following the loan term, it might stay fixed the whole duration. This can help with security and cash flow because you’ll know what to pay every month.
However, those with variable rates typically fluctuate with market trends. In other words, if interest rates happen to be increasing, they are likely to increase. However, if rates decrease, the lender could reduce the interest rate. Loans with variable rates can include other appealing features, including a redraw option or unlimited additional repayments to assist you in paying off the loan more quickly.
5. Research lenders
After you’ve got the basics down, It’s time to identify the right fit for your company. Research the different types of lenders, their products and services, etc. If you’re doing all of your banking with one institution, it’s easy to obtain a business loan through them as well. Perhaps you’ve found an online lender that is competitive and has attractive features and fees. Ensure you’ve researched your options, scrutinized the lender, and are fully aware of the products offered and the charges.
6. Know the fees and costs
When looking at your options, it’s crucial to know and be on the lookout for any hidden fees associated with the loan. Although an interest rate might appear attractively cheap, that’s not the only thing necessary. The comparison rate includes the interest rate and any other charges you’ll incur, and it’s crucial to keep an eye on this.
The fees and costs you could be considered could include:
- Application or establishment fees
- Monthly account maintenance fees
- Late repayment fees
- Fees for exit or break
- Costs for valuation (if you decide to get secured loans)
If you’re unsure of a specific fee or cost, you can do an instant Google or consult your lender. It’s crucial to know precisely what you’re paying for to get the best price.
7. Get all of your paperwork prepared
Once you’ve found a commercial loan that you’re satisfied with, ensure that you gather all your supporting documents. This will allow you to make it easier to fill in your application. The documentation required for your application may differ from lender to lender (but you will usually be able to find the requirements through their websites). It is possible to have to fill out the following criteria:
- Identification proof (driver’s license, passport, etc.)
- Your Australian Business Number (ABN) or Australian Company Number (ACN)
- Your business strategy
- The financial statements of your business over the past three years
- Statements from banks
- Any financial forecasts
Your personal financial information
In this way, the lender is armed with all the required information to evaluate your application. If you cannot access all of the data above or your lender demands it in their application, speak to an expert to see what you can do. If it’s a must, it may be necessary to search elsewhere or find an option to create the documents.
What do you need the business loan to fund?
There are many reasons why you may require the help of a loan for business. For a few ideas that you might need funding to pay for:
- Costs for starting up
- Capital investment
- Property or asset acquisition/development
- Refinancing loans other than those that are refinancing
- Expansion of business
- A new vehicle for work
- Purchase of equipment
Or any other reason that you require cash to boost your business. All you need to do is prove it’s an authorized business expense, and the lender will be able to consider the possibility.
How do you get a loan for your business?
If you’ve completed the initial seven steps and are ready to start, You may be thinking… what next? If you’ve got your financial plan and business plan and an asset that is waiting to be offered, you’re aware of your rating on your credit. It’s now time to get an enterprise loan.
You’ll have to go to their website to follow their application procedure. If you’re applying to the bank, you may be able to complete your application via telephone and in person. You’ll need all the supporting documents on hand when using them, and you should have them available.
The majority of business loan applications are simple. If you’ve ever sought personal loans previously, you might find that the procedure is similar. Naturally, when applying for a loan, you’ll have to provide additional details, why you’re the application is different, and so on.
If you encounter issues when applying, contact your loan provider directly. They will be able to help you in the process.
While filling out the application form, check to find your “five Cs”: character capacity, collateral capital, and conditions.
Character: your honesty and reputation, as well as your ability to repay your obligations (credit score and bank statements, as well as other financial records)
- Collateral: the security you put on the loan
- Capacity: Your business’s capacity to repay the loan
- Capital: your company’s and personal assets as well as liabilities
- Conditions: The payment schedule for the loan, fees, charges, and other conditions.
Alternatives to a business credit
If you’re not sure if an unsecured business loan is a suitable choice for you, There are other options for credit that you might consider for the task at hand. It will depend upon your financial circumstances, the company’s needs, and the products you’re hoping to purchase.
Credit card for business
It’s possible to get an enterprise credit card. As opposed to a personal credit line, the business credit card is issued to your business under your ABN. It is possible to have several cards for various employees, allowing you to pay for relatively low ongoing expenses easier.
A credit card might not be the best choice for a significant, one-time purchase. There’s a credit card limit, and the interest is high on credit cards that don’t get paid at the close of the month.
If you’re trying to pay for your day-to-day expenses or cover a small cash flow deficit, a business credit card is an alternative.
Personal loan
If you require just a few items but don’t want the cost of your business, then you might consider the possibility of a personal loan. Personal loans are similar to business loans. You’ll be able to apply for them under your name, not the name of your company. Conditions for eligibility, loan structures, and fees could differ. Therefore, you should consider your options when considering personal loans.
Car loan
If you’re thinking of getting a business loan to purchase a vehicle, then you might consider the possibility of a car loan instead. There are even corporate car loans that you could explore. Car loans are usually more affordable than personal loans; however, make sure you compare the alternatives. Also, car loans are often secure loans (with the car as security) that can help secure a lower interest rate.
Cash
You could also consider digging up your savings. This could be challenging depending on the items you’re looking to purchase. If you’re looking to purchase $30k, cash might not be the most appropriate option. However, if you require only a few hundred dollars, you might want to look into your savings account or the business’ small cash.
Are you eligible to consider a business loan?
In the end, deciding whether to apply for a commercial loan is your choice. You might find that business credit is the most effective choice for you, but you might also opt for an auto or credit card loan that is more suitable.
Whatever you decide to do, make sure to read through the terms of your contract thoroughly. Do your homework and know the specifics of what you’re signing to.
If you’re not sure your business can handle the burden of a large debt, Do some math and consider whether it’s achievable. You might want to consult a financial expert if you’re not sure.
Disclaimers
The whole market was not considered when deciding to select the above products. A cut-down segment of the market was looked at. Certain providers’ products might not be offered across all-state. The product’s name and the rate must be prominently displayed on the provider’s website site to be evaluated. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. To ensure full transparency Savings Media Group is a part of the Firstmac Group. Savings Media Group is associated with the Firstmac Group. To learn more about how Savings Media Group manages potential conflicts of interest, as well as how we are paid to do so, visit the website links at the bottom of this page.
