Applying for a Business Loan in 2023: How to Prepare & Get Approved
When preparing to take a small business loan there is a myriad of things that you need to take into consideration; from taking the right type of loan, sizing the amount of money you actually require, having the right documents for the business loan application, to understanding whether your business can afford such loan.
SmallBusinessLoansAustralia.com in general, and this guide specifically, will attempt to help you prepare mentally and physically for the sometime-rigorous path towards obtaining a business loan. Our business loan tips, specifically designed for first-time applicants, are easy to digest and easy to execute. It’s not only about how to apply for a business loan or what do you need to apply for a business loan, it’s about making a decision which is favourable for your business and serves your interests.
We also recommend you’ll see how we define good vs bad business debt.
Prior to applying: three tips for business borrowing
1. Write down what you need and why
The only way in which you will find financing you are happy with is by knowing exactly what you are looking for. Before you begin, the first step of business loan preparation is to ask yourself why you are looking to borrow money, how can borrowing this money helps your business generate more money, and whether you have financing alternatives.
Some people and business owners borrow money for no reason at all. It’s the power of the habit of people who have constantly been in debt all their lives, or – too busy to actually manage their finances so they’re happy to increase cashflow artificially and live comfortably. Other business owners are simply throwing good money after bad money into a business that won’t be making a return on funds invested into it. Writing down the exact purposes of why to borrow money is perhaps the most pivotal of all business loan tips because it is the point in which a business owner needs to be sincere with himself or herself and justify taking a business loan in a logical manner.
2. Write down how fast you need and how fast you are looking to repay it
Speed is a big issue when applying for a business loan. If your business needs funds urgently you may have to use a bank-alternative lender like Lumi and settle for a higher interest rate than you could have obtained with the bank. The speed of repayment also plays a big role because if you believe your business will be able to repay the loan quickly, then you could “afford” to borrow at higher interest as long as there is no early repayment fine.
3. Calculate and write down your monthly expenses and expected earnings to make sure you could repay your debt and what is your hard cap on interest
It is crucial to make absolutely sure you will not default on a business loan because it will lower your business credit score and moreover has the potential to throw you into a debt spiral which will force you out of business. It will put your under great mental strain and will surely not be productive in any other way. It’s better to know your limit and avoid applying for a business loan that you simply can’t afford. Use tools like a business loan repayment calculator in the process to make sure your calculations are accurate.
Choosing on the right business loan for your needs
If you are the DIY type of business owner or have background in finances, then you can navigate yourself in the tiring world of different types of loans. In all honesty, without background knowledge it can be pretty intense to understand the subtle differences for each type of loan, like in the various types of secured loan.
The first part is to decide on banks vs online lenders: banks are slower, requiring more documents, much less likely to approve your application (and it could take them weeks before they decline or approve your business loan application), but the interest rate they are offering is generally better than online lenders. Online lenders are instant, techier, easy to communicate with, transparent (at least the top-rated ones), and friendly – but the interest rate they are charging can be substantially higher if you are applying for an unsecured business loan, that is.
Normally, the choice between applying for a business loan with a bank or a lender comes down to necessity – businesses that require quick cash and/or have bad credit are likelier to be seeking unsecured business loan from a lender, other businesses would go to the bank but soon enough they will realise they will need to have a collateral (security) for that.
Applying for a Business Loan with Private Lenders
When it comes to private lenders, the main business loan tip you should know as a first-time applicant is that if you have a collateral (security) like an asset or machinery (or plan on using the loan to buy equipment i.e. equipment loan), you can obtain a secured loan from a lender which can be as low-interest as a banks’. Other than that it’s difficult to delve into the ins and outs of business finance without writing thousands over thousands of words, and even then it’ll be very difficult to collate the exact interest rates charged by each loan type / lender without actually applying.
This is where business loan brokers come in handy – they ask you for the relevant information they need, understanding your needs and limitations, and offer the right type of loan while connecting you to a relevant bank or lender. Once again we have a an alternative solution for that because loan brokers would normally charge a markup of 7%-17% of the loan, costing you, the customer, to pay more! There are simple online solutions such as Lend, an online brokering system connecting business owners in Australia with lenders. Make your application below:
Applying for a Business Loan with Banks
If you are applying for a bank business loan, then you would need to know how to prepare for a business loan with an archaic facility. You will need to be prepared with all the accounting information, business proposal/plan, and a thorough explanation of what the funding will be paying for. Furthermore, the bank is going to evaluate your business not only based on the hard data that you will be providing nor your projections but also based on your character and their opinion whether you could pull the business plan you have presented.
Since you would not have any way to know what kind of business proposal you are going to get from the bank, if your business loan application is approved, it is always recommended to apply for a business loan with multiple banks so that you would have competing offers.