How to get a business loan, options & requirements, Business Victoria, applying

Apply for a business loan

Not what you’re looking for?

  • Choosing a loan you need
  • Improve your loan approval chances
  • Risk assessment

When applying for a business loan, it’s essential to prepare a detailed business plan and fully inform the lender about your proposed venture. This information helps the lender to provide you with the right type of finance and advice.

Deciding that your business needs a loan is only the first step. There are a number of things to consider before you approach a lender:

  • how much do you need to borrow?
  • what type of loan will you need?
  • how long will you need it for?
  • can the business afford to repay the loan, interest and any one-off or ongoing fees that come with the loan
  • what security can you offer the lender and how this affects the interest rate offered.

Online repayment calculators are a good tool in researching options but make sure you take the following into account:

Access to funds you borrow

If you need to access the funds on a semi regular basis to help with cash flow to keep the business operating while waiting for your customers to pay for goods, ‘at call’ loans such as an overdraft or line of credit are designed for this purpose. However, if you need the funds to buy a new business or equipment to expand your existing business you will need the funds ‘upfront’. This is also known as a ‘fully drawn advance’ and provides you with the entire loan amount all at once.

Loan terms

Loans provided upfront will need a portion of the loan plus interest paid back at regular intervals. The repayment amount will depend on the term or length of the loan. To determine the loan term suitable for your business you will need to calculate how much you can afford to service the loan. Be aware that the longer the loan term the more total interest you will pay. Loans that are at call have no fixed terms.

Ongoing funding

This is the average amount of an overdraft or line of credit that is used at any one time. For example, you may wish to have an overdraft limit of $20,000 to provide money for the occasional big expense, but usually you won’t use more than $5000 of that credit limit on average. So in this case $5,000 is the level of ongoing funding you need.

When applying for an overdraft limit, things to watch out for are:

  • higher the overdraft amount higher the fees
  • clauses where the lender can demand repayment of the whole loan at any time.

Fixed or variable interest rate

The choice of rate will affect the stability of repayments, overall cost of the loan and the loan features available. With a fixed rate loan the lender bears the risk of interest rate moves, while with a variable rate you will bear this risk. Ultimately, the choice of variable or fixed rates will depend upon how much free cash flow your business generates after you have paid all your expenses, including loan repayments. If your business has a low profit level, a variable rate loan repayment may rise beyond your ability to pay.

Loan security

Loans can be secured or unsecured by various types of assets, including residential, commercial, rural property or business assets. Alternatively, some loans are unsecured by any asset. Generally the less you provide for security the higher the interest rate will be. Be aware the lender has the legal right to seize any property or asset you offer as security if you can’t repay a loan on time.

There can be fees which can make a loan less attractive than it first seems. These include one-off fees such as establishment/application fees, exit/discharge fees and early termination fees or regular fees such as service fees or line/credit advance fees. The Business Loan Finder tool includes the cost of set-up and ongoing fees in the average monthly repayment to give you a better idea of the true cost of the loan.

Seek advice

The information provided here will provide you with a range of possible finance options. It is important to seek advice from your accountant or business advisers before approaching a lender for a loan.

Tip: Use our below Cashflow forecasting template to plan your cash flow and work out how much you need to lend.

Plan the business, plan the finance

Lenders will ask for a lot of in-depth information about the financial history of the business. It’s also important for you to create a convincing and detailed business plan which should include a profit and loss budget and cash flow forecast. The information you use to build your business plan may also be needed by the lender to assess your project. This includes both the past and future plans for your business, the people working in it and the market itself.

The outcome of your application is strongly influenced by how well your proposal is researched and how well it is presented.

Risk assessment

Banks and other lenders will look at your business’s risk profile when considering your loan application. Understanding what lenders look for and what they consider risky will help you present your business in a favourable manner.

As a general rule, lenders look for:

  • the level and nature of your security (what you’re offering to give them if you can’t repay the loan)
  • your ability to make regular loan repayments (cash flow risk)
  • your ability to ultimately repay the debt (business risk), including any other debts you might already have.

You need to be able to assess the level of cash flow or business risk in your specific circumstances. A projection of the cash requirements of the business is most important to a lender, as it is the actual cash left after expenses that will repay the loan, not income. It also shows you are an effective manager.

A lender’s perception of risk

The following factors can influence your lender’s perception of risk. If a number of these areas apply to you and your business you may need to consider another source of finance.

  • start up businesses incorporate financial, business and management risk
  • lack of security
  • lack of business history
  • industry sector, factors will include levels of competition, barriers to entry, profitability profile and current economic conditions
  • highly seasonal businesses, for example swimwear and agriculture. You’ll need to demonstrate how you’ll deal with cash flow pressures in the off season
  • lack of planning, market knowledge and finance skills
  • poor credit history.

Watch out! Before entering into a payment arrangement with the Tax Office, businesses should discuss this with their current or future lenders. Many businesses are unaware that entering into a payment arrangement with the Tax Office or other government agencies may adversely affect their current and future financing arrangements. For instance, a lender may not lend to a business if it is currently in a payment arrangement.

For more details visit the Guide to managing your tax debt on the ATO website.





How to get a business loan, options & requirements, Business Victoria, applying

Apply for a business loan

Not what you’re looking for?

  • Choosing a loan you need
  • Improve your loan approval chances
  • Risk assessment

When applying for a business loan, it’s essential to prepare a detailed business plan and fully inform the lender about your proposed venture. This information helps the lender to provide you with the right type of finance and advice.

Deciding that your business needs a loan is only the first step. There are a number of things to consider before you approach a lender:

  • how much do you need to borrow?
  • what type of loan will you need?
  • how long will you need it for?
  • can the business afford to repay the loan, interest and any one-off or ongoing fees that come with the loan
  • what security can you offer the lender and how this affects the interest rate offered.

Online repayment calculators are a good tool in researching options but make sure you take the following into account:

Access to funds you borrow

If you need to access the funds on a semi regular basis to help with cash flow to keep the business operating while waiting for your customers to pay for goods, ‘at call’ loans such as an overdraft or line of credit are designed for this purpose. However, if you need the funds to buy a new business or equipment to expand your existing business you will need the funds ‘upfront’. This is also known as a ‘fully drawn advance’ and provides you with the entire loan amount all at once.

Loan terms

Loans provided upfront will need a portion of the loan plus interest paid back at regular intervals. The repayment amount will depend on the term or length of the loan. To determine the loan term suitable for your business you will need to calculate how much you can afford to service the loan. Be aware that the longer the loan term the more total interest you will pay. Loans that are at call have no fixed terms.

Ongoing funding

This is the average amount of an overdraft or line of credit that is used at any one time. For example, you may wish to have an overdraft limit of $20,000 to provide money for the occasional big expense, but usually you won’t use more than $5000 of that credit limit on average. So in this case $5,000 is the level of ongoing funding you need.

When applying for an overdraft limit, things to watch out for are:

  • higher the overdraft amount higher the fees
  • clauses where the lender can demand repayment of the whole loan at any time.

Fixed or variable interest rate

The choice of rate will affect the stability of repayments, overall cost of the loan and the loan features available. With a fixed rate loan the lender bears the risk of interest rate moves, while with a variable rate you will bear this risk. Ultimately, the choice of variable or fixed rates will depend upon how much free cash flow your business generates after you have paid all your expenses, including loan repayments. If your business has a low profit level, a variable rate loan repayment may rise beyond your ability to pay.

Loan security

Loans can be secured or unsecured by various types of assets, including residential, commercial, rural property or business assets. Alternatively, some loans are unsecured by any asset. Generally the less you provide for security the higher the interest rate will be. Be aware the lender has the legal right to seize any property or asset you offer as security if you can’t repay a loan on time.

There can be fees which can make a loan less attractive than it first seems. These include one-off fees such as establishment/application fees, exit/discharge fees and early termination fees or regular fees such as service fees or line/credit advance fees. The Business Loan Finder tool includes the cost of set-up and ongoing fees in the average monthly repayment to give you a better idea of the true cost of the loan.

Seek advice

The information provided here will provide you with a range of possible finance options. It is important to seek advice from your accountant or business advisers before approaching a lender for a loan.

Tip: Use our below Cashflow forecasting template to plan your cash flow and work out how much you need to lend.

Plan the business, plan the finance

Lenders will ask for a lot of in-depth information about the financial history of the business. It’s also important for you to create a convincing and detailed business plan which should include a profit and loss budget and cash flow forecast. The information you use to build your business plan may also be needed by the lender to assess your project. This includes both the past and future plans for your business, the people working in it and the market itself.

The outcome of your application is strongly influenced by how well your proposal is researched and how well it is presented.

Risk assessment

Banks and other lenders will look at your business’s risk profile when considering your loan application. Understanding what lenders look for and what they consider risky will help you present your business in a favourable manner.

As a general rule, lenders look for:

  • the level and nature of your security (what you’re offering to give them if you can’t repay the loan)
  • your ability to make regular loan repayments (cash flow risk)
  • your ability to ultimately repay the debt (business risk), including any other debts you might already have.

You need to be able to assess the level of cash flow or business risk in your specific circumstances. A projection of the cash requirements of the business is most important to a lender, as it is the actual cash left after expenses that will repay the loan, not income. It also shows you are an effective manager.

A lender’s perception of risk

The following factors can influence your lender’s perception of risk. If a number of these areas apply to you and your business you may need to consider another source of finance.

  • start up businesses incorporate financial, business and management risk
  • lack of security
  • lack of business history
  • industry sector, factors will include levels of competition, barriers to entry, profitability profile and current economic conditions
  • highly seasonal businesses, for example swimwear and agriculture. You’ll need to demonstrate how you’ll deal with cash flow pressures in the off season
  • lack of planning, market knowledge and finance skills
  • poor credit history.

Watch out! Before entering into a payment arrangement with the Tax Office, businesses should discuss this with their current or future lenders. Many businesses are unaware that entering into a payment arrangement with the Tax Office or other government agencies may adversely affect their current and future financing arrangements. For instance, a lender may not lend to a business if it is currently in a payment arrangement.

For more details visit the Guide to managing your tax debt on the ATO website.





How to Apply for Your First Business Loan, Fox Business, applying for

How to Apply for Your First Business Loan

By George Schofield Published December 12, 2013 Small Business

Applying for a business loan

If you are among the 40% of baby boomers AARP says plan to work until they die, and if you plan to start or buy a business instead of working for someone else, your venture will likely involve some sort of financing.

Continue Reading Below

Unless you plan to fund this enterprise solely with savings—not recommended unless you are fabulously wealthy—you’ll need a business loan. As any lender can tell you, the better prepared you are before making your request for business credit, the greater the likelihood of getting approved.

Part of this preparation is understanding what bankers will need to approve you. Banks make a major portion of their profits from loans. They’re not in the business of saying no; they just say it when your application doesn’t meet lending requirements, which are much stricter now than before the financial crisis. But be aware that start-ups are almost always considered risky bets, and many lenders are reluctant to finance them. Also know that many larger banks won’t even consider small loans, which are less profitable than larger loans but require the same amount of time to analyze and administer.

Don’t let these discourage you. Get organized. How small is small? According to the Small Business Administration (SBA), the median small business loan from a financial institution is roughly $135,000, with highest around $250,000. SBA loans, which are not underwritten by the US Government but by SBA partners (lenders, community development organizations and microlending institutions), range from $5,000 (a microloan) to $5 million, with the average around $371,000.

Do Your Homework So what exactly are lenders looking for? Basically, they’re searching for clues that your business will be able to repay the loan, plus interest, with metronomic regularity. Most financial institutions will expect the loan to be fully secured, either with business assets or personal collateral. Having some skin in the game, meaning you have your own equity invested in the business, strongly works in your favor.

Lenders also will be looking at opportunities to profit from your success, so as your business grows, so will your business relationship. The buzzword in banking circles these days is cross-selling, so your business loan provider may also seek to be the issuer of your business’s credit cards and holder of your treasury accounts. Lenders will also be looking at you—your personal finance record, your credit score, your assets, your work experience, and your character. If you’re starting a business for the first time, having partners with the experience and track record that you lack may also be a requirement.

Continue Reading Below

The Questions You Need to Answer Once you’re ready to make your request, ask the financial institution for the documentation it requires. Then, be prepared to answer the questions, in depth, on the right side of the chart. Once you’re ready to make your request, ask the financial institution for the documentation it requires. Then, be prepared to answer the questions, in depth, for each of the categories listed below.

Purpose: What will the funds be used for? (Note that banks won’t lend for speculating, passive investments, pyramid sales or gambling.)

Amount: How much money do you want to borrow? Why that particular amount? Term and

Repayment Plan: For how long will you need the money and what is your specific plan for repayment?

Collateral: What assets, business or personal, do you intend to use as collateral? What is their market value? What portion of their value can you use as collateral?

Asset and Liability Statement: Your current, complete business asset and liability financial statements (your balance sheet).

Current Income and Financial Performance Statement: Your current, complete business statement of income and expenses (your profit and loss statement, or P L).

Business Plan Details: Your written plan for your business including goals and action steps, timetable, resource allocation, funding required, and related financial data. You may be asked for cash flow projections for at least a year.

Historic Financial Performance Information: Past business financial performance information under your ownership or under the previous owner’s ownership.

Other Information As Required: Information about you (your C.V., your loan Guarantor—someone who will pledge his/her assets and financials to guarantee repayment of the loan should you default. Guarantors can be a legitimate tipping point factor in getting a “yes” to the credit request.

If You’re Turned Down What do you do if you get a no? Don’t give up. Pursue the reasons for the rejection. Was it a procedural thing—a missing piece of information on the application—or something else? Then ask what would it take to get a yes.

You can then either alter your request accordingly and resubmit it, or take it elsewhere. If you keep hitting a brick wall, consider alternative sources of funding. Many entrepreneurs seek out financing from family and friends. Some use their available credit from credit cards or home equity lines of credit to finance their businesses.





How to Apply for a Small Business Loan, applying for a business

How to Apply for a Small Business Loan

Whether you re getting ready to start a new business or you re looking to grow an existing one, there may come a time when you will need a small%20business ” href=”http://www.businessnewsdaily.com/90-infographic-us-small-business-facts.html”>small business loan.

The first step is to apply for a loan through a commercial bank, preferably one you already have a relationship with. If you are unable to secure financing that way, you can apply for a loan through the Small Business Administration (SBA). The SBA may be able to assist you in getting a loan from a lender that wouldn t normally loan you money without the SBA s endorsement (details from the SBA). The SBA will not consider loan applications until you can prove that you have exhausted traditional lending options.

Regardless of what route you take, you will be expected to have your ducks in a row before you initiate the loan application process.

Your prospective lender will require comprehensive documentation of your personal and business financial status and a clear understanding of your business%C3%A2%C2%80%C2%99%20goals%20and%20plans ” href=”http://www.businessnewsdaily.com/30-writing-small-business-plans-resources.html”>business €™ goals and plans . It will want to get an idea of who you are as a person.

  • Banks will ask for many documents including:
  • Bank statements
  • Business%20plan ” href=”http://www.businessnewsdaily.com/25-balance-sheet-financial-insights.html”>Business plan
  • Cash%20flow%20projection ” href=”http://www.businessnewsdaily.com/25-balance-sheet-financial-insights.html”>Cash flow projection (a projection of income and expenses)
  • Tax returns and all related financial documents for both the owner and the business
  • Detailed breakdown of existing capital and collateral (including cash, real estate, machinery, vehicles, etc.)

Banks will use all of these documents to determine whether loaning money to your business is a safe bet. There are many factors they will consider, including your business working assets, its debt-to-worth ratio, the rate at which income is received after it is earned, the rate at which debt is paid after becoming due and the rate at which the service or product moves from the business to the customer. For new businesses, banks will be looking for an educated guess on these indicators and documentation to back your estimate up.

Lenders will also consider its working assets and how much of your own money the owner and principals are willing to invest.

Lenders will expect you to contribute your own assets and to undertake personal financial risk to establish the business before asking them to commit to any funding, explains the Small Business Association s web site.

While some commercial banks will allow your business entity to secure and take responsibility for the loan, all SBA loans require personal guarantees from those who own 20 percent or more of the business, plus other individuals who hold key management positions.

Finances aren t the only thing that banks will consider when deciding whether to loan you money. Your personal appearance, attitude and demeanor are all indicators of whether your business will succeed.

Editor s Note: Looking for a small business loan? If you re looking for information to help you choose the one that s right for you, use the questionnaire below to have our sister site, BuyerZone, provide you with information from a variety of vendors for free:

The SBA web site clearly warns prospective borrows that a lender s decision to loan money is a subjective one.

Character is the personal impression you make on the potential lender or investor, states the SBA s web site. It helps them determine whether or not you are sufficiently trustworthy to repay the loan or generate a return on funds invested in your company.

James Jacobs, a retired president of a financial services group in Dallas and a SCORE (Service Corps of Retired Executives) advisor, puts it more succinctly.

Don t go in and apply for a loan in your flip-flops, Jacobs advised. You ve got to act like you re in business even if you re not yet.

A comprehensive business plan will say a lot about who you are and what you chances of success are, Jacobs told BusinessNewsDaily.

He advises making sure your business plan includes an executive summary, a business profile, anticipated sales and a marketing plan. SCORE offers a business plan creation kit on its web site, and there are several business plan software options to guide you through the process.

For more detailed help on applying for a loan, the SBA offers a free course on its web site called, How to Prepare a Loan Package.

  • Finance%20Options%20for%20a%20Business%20Startup ” href=”http://www.businessnewsdaily.com/3-small-business-start-up-finance-options.html”>Finance Options for a Business Startup
  • How%20to%20Write%20a%20Business%20Plan ” href=”http://www.businessnewsdaily.com/30-writing-small-business-plans-resources.html”>How to Write a Business Plan
  • What%20a%20Small%20Business%20Development%20Center? ” href=”http://www.businessnewsdaily.com/18-small-business-development-center-resources.html”>What a Small Business Development Center?

Jeanette has been writing about business for more than 20 years. She has written about every kind of entrepreneur from hardware store owners to fashion designers. Previously she was a manager of internal communications for Home Depot. Her journalism career began in local newspapers. She has a degree in American Studies from Rutgers University. Follow her on Twitter @jeanettebnd.





Applying For A Business Loan – 4500 Personal Loan, applying for a

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How to Apply for a Small Business Loan, applying for a business

How to Apply for a Small Business Loan

Whether you re getting ready to start a new business or you re looking to grow an existing one, there may come a time when you will need a small%20business ” href=”http://www.businessnewsdaily.com/90-infographic-us-small-business-facts.html”>small business loan.

The first step is to apply for a loan through a commercial bank, preferably one you already have a relationship with. If you are unable to secure financing that way, you can apply for a loan through the Small Business Administration (SBA). The SBA may be able to assist you in getting a loan from a lender that wouldn t normally loan you money without the SBA s endorsement (details from the SBA). The SBA will not consider loan applications until you can prove that you have exhausted traditional lending options.

Regardless of what route you take, you will be expected to have your ducks in a row before you initiate the loan application process.

Your prospective lender will require comprehensive documentation of your personal and business financial status and a clear understanding of your business%C3%A2%C2%80%C2%99%20goals%20and%20plans ” href=”http://www.businessnewsdaily.com/30-writing-small-business-plans-resources.html”>business €™ goals and plans . It will want to get an idea of who you are as a person.

  • Banks will ask for many documents including:
  • Bank statements
  • Business%20plan ” href=”http://www.businessnewsdaily.com/25-balance-sheet-financial-insights.html”>Business plan
  • Cash%20flow%20projection ” href=”http://www.businessnewsdaily.com/25-balance-sheet-financial-insights.html”>Cash flow projection (a projection of income and expenses)
  • Tax returns and all related financial documents for both the owner and the business
  • Detailed breakdown of existing capital and collateral (including cash, real estate, machinery, vehicles, etc.)

Banks will use all of these documents to determine whether loaning money to your business is a safe bet. There are many factors they will consider, including your business working assets, its debt-to-worth ratio, the rate at which income is received after it is earned, the rate at which debt is paid after becoming due and the rate at which the service or product moves from the business to the customer. For new businesses, banks will be looking for an educated guess on these indicators and documentation to back your estimate up.

Lenders will also consider its working assets and how much of your own money the owner and principals are willing to invest.

Lenders will expect you to contribute your own assets and to undertake personal financial risk to establish the business before asking them to commit to any funding, explains the Small Business Association s web site.

While some commercial banks will allow your business entity to secure and take responsibility for the loan, all SBA loans require personal guarantees from those who own 20 percent or more of the business, plus other individuals who hold key management positions.

Finances aren t the only thing that banks will consider when deciding whether to loan you money. Your personal appearance, attitude and demeanor are all indicators of whether your business will succeed.

Editor s Note: Looking for a small business loan? If you re looking for information to help you choose the one that s right for you, use the questionnaire below to have our sister site, BuyerZone, provide you with information from a variety of vendors for free:

The SBA web site clearly warns prospective borrows that a lender s decision to loan money is a subjective one.

Character is the personal impression you make on the potential lender or investor, states the SBA s web site. It helps them determine whether or not you are sufficiently trustworthy to repay the loan or generate a return on funds invested in your company.

James Jacobs, a retired president of a financial services group in Dallas and a SCORE (Service Corps of Retired Executives) advisor, puts it more succinctly.

Don t go in and apply for a loan in your flip-flops, Jacobs advised. You ve got to act like you re in business even if you re not yet.

A comprehensive business plan will say a lot about who you are and what you chances of success are, Jacobs told BusinessNewsDaily.

He advises making sure your business plan includes an executive summary, a business profile, anticipated sales and a marketing plan. SCORE offers a business plan creation kit on its web site, and there are several business plan software options to guide you through the process.

For more detailed help on applying for a loan, the SBA offers a free course on its web site called, How to Prepare a Loan Package.

  • Finance%20Options%20for%20a%20Business%20Startup ” href=”http://www.businessnewsdaily.com/3-small-business-start-up-finance-options.html”>Finance Options for a Business Startup
  • How%20to%20Write%20a%20Business%20Plan ” href=”http://www.businessnewsdaily.com/30-writing-small-business-plans-resources.html”>How to Write a Business Plan
  • What%20a%20Small%20Business%20Development%20Center? ” href=”http://www.businessnewsdaily.com/18-small-business-development-center-resources.html”>What a Small Business Development Center?

Jeanette has been writing about business for more than 20 years. She has written about every kind of entrepreneur from hardware store owners to fashion designers. Previously she was a manager of internal communications for Home Depot. Her journalism career began in local newspapers. She has a degree in American Studies from Rutgers University. Follow her on Twitter @jeanettebnd.