Putting Yourself In The Best Stead To Get A Small Business Loan

Friday, October 31, 2014

With a bit of preparation, you can put yourself at the front of the queue when it comes to small business loan eligibility.

Deloitte Access Economics estimated in late 2013 that about 10 per cent of Australian SMEs, or around 200,000 businesses, have problems accessing finance.

And while small business loan eligibility criteria might vary between lenders, the experts agree on one thing: getting a loan relies on educating your bank about your business.

“SMEs need to present themselves as lower risk, secure business partners to compete in this landscape,” says Chris Gebhardt, business advisory director at accounting firm William Buck.

“It’s surprising how many businesses forget to outline the basics - how much money they want, what they want to use it for, and a projection of how they intend to repay the bank.”

This is echoed by Sam McCarthy, managing director of Dirigo Group, whose business finance brokers facilitate loans from $250,000 to $20 million for small and middle market clients.

"A business owner must be able to explain the drivers of business revenue, profit and cash, give a detailed explanation of all recent financial trends – that is, changes in revenue, profit margins – and to explain why their forecast is reasonable and achievable," says McCarthy.


Get the bank on your side

McCarthy says to get a chance at explaining yourself to a lender, first-up you need to be seen as a good bet. "It's important to have no defaults listed on your credit file, particularly if they're for more than $100, and that you have not been late or missed repayments in the last six months," he says.

You should also be clear on what type of loan you want – that is, business loan or a personal loan – particularly where the security is your family home.

Essentially, says McCarthy, whether you need to apply for a business loan comes down to a question of fact. "If the purpose is to provide funding to a business and the source of repayment is business profits, it is likely you will need a business loan," he says.

"Requirements vary from lender to lender but, generally speaking, for startups the focus will be on security, owner’s equity contribution, financial forecast and the business plan," says McCarthy. "For established businesses, the focus will be on recent trading performance and soundness of management, with a moderate focus on the financial forecast."

Overall, though, the two most important things for a business owner to be educated on when applying for a loan are:

  • Depending on the size or purpose of the loan, you may be required to provide your business plan, which must cover off on all aspects of your business, including a detailed analysis of your industry, market, staff and operations and show how you intend to achieve your aims, along with a good understanding of the risks involved.
  • Financial information, including the previous two years’ accountant-prepared financials and a "three-way forecast", covering your profit and loss accounts, balance sheet and cash flow.


These should all be backed up by hard evidence, such as bank statements for existing loans, credit cards and trading accounts, and your current ATO tax portal statement.