Checklist For Applying For A Business Loan
Tuesday, December 22, 2015
Everyone who has had a business has had the thought: I really could do with some capital right now. All small businesses at some time are likely to need some financial injections to get things moving to the next level. A business loan checklist can help get you over the line. Such a loan checklist will likely need adapting to meet your specific needs. But, there’s a few common pointers that might come in handy.
The first thing to consider
is that looking for capital is no rarity. With over 2 million small businesses currently operating in Australia – some 97% of the total number of businesses in operation – loan applications are a common part of many business managers’ work. The big question is, how does a small business owner approach a small business loan and come out the other side with a result?
Right now, conditions are favourable for small businesses seeking capital injections. Interest rates are at historic lows and may drop further still as a lagging economy prompts the bean counters to find ways to get things moving.
The landscape looks likely to get more favourable still. The Murray Inquiry's investigation into Australia's financial system has recommended tackling excessive credit card fees, crowd-funding and unfair credit contracts to help small businesses along. The federal government has indicated it will support these moves.
But, while there has been hardly an easier environment for small business owners to consider taking on new debt, the basics remain the same.
The first basic is to really think about why you want that loan. What are you going to do with it? How will the money be spent? Where? Who are your suppliers? Have you sourced costs? How will you pay the loan back and when?
It sounds like obvious stuff. But, you'd be surprised how easy it is for business owners to get a little carried away with themselves and, seeing easy capital in the offing, forget to think through the reasons for going into debt.
To put it another way, it's easy to think of ways to spend money. Can you justify going into debt? Have you consulted mentors or trusted colleagues, or even family members? Have you done your numbers?
The art of business management is in knowing what is needed most to grow your business to its maximum potential at a given time. It's also in knowing how to structure your debt so you can get it paid back without stressing you or your company.
The choice of loan type is essential and while your bank manager should be able help to select the best one for you and your business, it's good to know what you're dealing with before you turn up for your big meeting anyway.
And, your documentation needs to be in order
The most likely back-up you'll need are, bank statements, cash flow, profit and loss, business plan, insurance, competitor analysis, client demographics and growth patterns, sales stats, management team and board details. Basically, build a dossier of any kind of document that tells a story of your business, because you may need it.
A good business plan should give a confident, if realistic sense of your business future. Make sure you have your figures up to date and that you can back your numbers with actual proof. Evidence of past projections being met will be valuable. A solid marketing plan should confirm that you understand your people and that you know where you're aiming. Having a grasp of demographics and customer relationships shows that your business has the capacity to extract the revenue needed to service the loan.
Good financial records will also help. Having a long-standing relationship with your bank will allow the loan officer to go over your past transactions and see the shape of your business over time. Hopefully, that will show your growth as well as your prudence in using the income and profits you have steadily generated.
Make sure too that all your obligations are up to date. Things like insurance premiums, taxes or membership fees can give a handy definition of how you run your company. Letting such things lag is a bad look.
Doing your research is vital
Before you even apply, know what you want. There are a myriad of business loan types out there and the market place can be daunting if you don't take some time to get familiar with how all the different products work. Different loan products suit different agendas and different requirements. Ensure you understand the implications of interest rate shifts, for instance, or changing bank conditions.
In all cases, the central issue is to be sure on what you are seeking to do, what outcomes are you aiming at, over what time frame, and about how the repayments can be organised in a way that suits your business needs.
The important thing about thinking all this through is that not only are you clear about the point of the loan, you can better sell yourself and your ideas to the bank. Your banker will be thinking, “Why should I give this person some money?” That's their job. Your job is to answer questions like, why should you get this money and not someone else? What have you done to earn this opportunity? How can you prove you are viable and can repay the loan?
A small business loan is about getting your business to the next level. You can feel secure in the knowledge, you are not alone. Monthly figures from APRA for the month of September show that there are $693.9 billion in loans and advances on Australian books of individual banks.
Credit has been with us for a long time. It's the foundation of many a small business, and its place in the economy is firm enough for it to be considered simply as another tool for business owners to grow their business. Building up a loan checklist is just like anything else you do in business. Do your homework. Be prepared. Know your limits and make an informed decision.
- Sort out the whys and wherefors: Know exactly what you want to achieve, how much debt you want, how you want it, and how you want to service it
- Homework Pays: background the loans market and have sense of what kind of loan you are looking for.
- Paper Trail: make sure your books are in order. Know where all the info you need is found and how to interpret it
- Business Plan: Have a good business plan at the ready. Let the loan officer see your business has direction and purpose, and that you have the ability to grow
- Feel the Love: Don’t be afraid to show how much you love your business. The human aspect of any business is important and bank managers want to see your passion and commitment.