Obtaining a loan is notoriously difficult for small businesses, but there are ways to improve the appeal of your loan application. Working with a small business accountant can help you increase your chances of getting an approval.
Borrowing funds is just one of the ways small businesses can generate capital, and indeed it is a common practice. For small businesses, though, obtaining a loan can be difficult – but it is far from impossible. Instead of counter-productively applying for loans left, right and centre in the hope one is approved, check your readiness to borrow funds using these five tips to boost your chances of success.
Check your credit report to examine the credit details held on file about your business and yourself as a company director. Familiarising yourself with this information places you in a better negotiating position with potential lenders, and allows you to clear up any incorrect defaults that may hold you back from obtaining finance.
Being eligible for a loan is one thing, but consider how those loan repayments will influence your ongoing cash flow. Research which lenders offer the best rates to small businesses, then target your application according to their lending criteria. Knowing what rates are available on the open market also gives you better bargaining power to further reduce your rate.
Determine exactly why you need to borrow funds, how you intend to repay the loan and what the money will be used for. Your small business accountant or financial advisor will be able to suggest alternative means of raising capital that may work better for your business, or help you identify the most appropriate loan products, as well as keep your operating finances in good health.
Once you know which lender you want to approach and why you need the funds, build a dossier of relevant documentation as evidence to support your application. Include everything from banking statements and invoices through to your business plan, forward revenue projections, product prototype designs, business insurance policy details and competitor analysis.
Use everything you have gathered from the points above to really sell yourself and your business.
Just like setting up a business, applying for a business loan is a process best approached with as much information as possible. Should your application still be declined, consider the steps outlined by business.gov.au for how to manage a loan refusal.