What lenders look for in a loan application

What does it take to get a small business loan approved?

Here are some secrets from a lending expert’s guidebook

Small businesses often require loans to either expand or maintain regular operations. While there are many lenders who provide loans to small business owners, they do so on certain terms and conditions. As lending is a risky business, most lenders are quite stringent about approving small business loans. 

While unprecedented times such as COVID-19 may cause them to cut some slack in terms of the rate of interest, it is still very important for small business owners to match with the lender’s criteria to secure a loan successfully.

Being in the business for long, we have realized there are certain standard requirements lenders look for in an application. Let us navigate you through the realms of a lending expert’s guide and let out some secrets so you can secure your next business loan quite smoothly.

Business Plan

As a small business owner, you should be able to provide a constructive plan or a business idea. This often lays down the first stone of trust between the business owner and the lender. It is important for lenders to get convinced in the future of your business for which the loan will be eventually sanctioned. 

Duration of the business

Businesses that have run longer have more chances of securing a loan. As lenders find such businesses to be more financially stable and less risky to lend to. Typically, a business takes some time to break even and grow steady in the market, hence lenders consider a minimum of 6 months to a year for a small business to have thrived in the industry before lending. 

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Credit history

Before approving a loan, lenders often do a thorough background check on the credit history of the business to ensure the returns. They look out for defaults, late payments and other details. A good credit history will always have better chances of approval.

Purpose of the loan

The reason for which the loan is being sought influences the lender’s decision. Loans sought for machinery or equipment purchase get approved sooner. 

Cash flow, Revenue and Distributions

Lenders check for the business’s previous trend of cash flow and their profit and loss statements carefully to determine if it will be able to manage the loan amount in the future. Lenders look for what you take out from the business and what you reinvest into it. The more the distributions from the company, less will be the amount approved by the lenders. 

Documentation check

Documentation plays a major role in securing you a loan – get these documents ready before you apply for the loan for your business.

1. Tax returns
2. Financial statements
3. Bank statements
4. Legal documents related to the Business
5. Active ABN with minimum of 6 months of business
6. A minimum of AUD$5000/month worth of business revenue

Transparency check

It is important that the business shows complete transparency with their documentation and paperwork to avoid any miscommunication in the future. 

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Intermediaries

There are intermediaries who connect small businesses and lenders together. There are higher chances of getting a loan approved when working with trusted intermediary companies since they understand the different criteria set by each lender. Capital Boost is one such intermediary. Our personalised approach clubbed with our lender-neutral policy ensures we match your requirement only to the best fit lender for a higher chance of approval for your small business loan. 

Flexibility due to Pivoting

Due to the recent COVID-19 situation, a lot of pivoting has occurred towards small businesses for lesser risk factor. Hence a Lender carefully considers if the business has a long-term goal for the particular business. Business Loans are only sanctioned if there is confidence on the new business to survive through the term plan period to avoid defaults in the future.

Conclusion

We know running a business is not an easy task. But getting a loan for your small business approved need not be a nightmare either. What we have shared here with you is from the lending expert’s guide itself. Just ensure you consider these factors before applying for a business loan. For more personal assistance and expert advice, you can always write to us at info@capitalboost.com.au or call our lending experts on 1300 360 530. We will do what it takes to help you obtain the required finances that will give your business the right boost. 

 

Tagged in: Business Loan, Small Business Loan, Unsecured Business Loan, Loans for Small Business, Australia Business, SME Loans, Business Loan Approval, Securing a Loan, Loan Rejection

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