How to get a small business loan that works for you
If you need to access finance, these four tips can make sure you are approved, not declined.
1. Dig up your documents
Traditional lenders will demand all paperwork relevant to your business’s prospects of success, and won’t sign off an application without it. These may include a business plan, P&L, cash flow forecast, revenue projections, competitor analysis and much more.
Online lenders like Prospa make life much easier for small businesses. For amounts under $100,000, you only need to provide your driver’s licence, ABN and the BSB and account number of your main trading account. For loans over $100,000, basic financial documentation like P&L and cash flow are required to ensure your business is capable of making repayments.
2. Check your credit score
Your credit history is usually the most important factor for a traditional lender. Banks will obtain a copy of your credit report, so it’s crucial you examine yours before applying. Otherwise you may not understand what sort of negotiating platform you’re starting from.
Even if you think your record is clean, double-check it to ensure there are no inaccuracies or nasty surprises. You may not be aware that every time you apply for credit and a credit provider obtains a copy of your report, an inquiry is logged. Credit providers may take a negative view of multiple inquiries made in a short space of time, which may affect your ability to obtain credit.
Under consumer law, you have the right to obtain your credit report and correct any wrong information. Contact any of these credit reporting agencies for a copy:
- Equifax (previously Veda).
- Check Your Credit (Dun & Bradstreet).
- Tasmanian Collection Service.
3. Master your pitch
Obtaining a small business loan from a bank is essentially a pitch. You’ll need to sell yourself, your business and your plans for the future, while being both professional and passionate.
This can be daunting for those with little experience presenting or selling. Make sure you rehearse, and think of any possible questions or shortcomings that might be brought up. It pays to be ready with evidence that can back up how you will overcome specific issues. The best way to do this is to prove your ROI, or showcase your business growth in easy-to-read graphs and charts.
Fortunately, getting a small business loan from Prospa doesn’t require a pitch. Once you explain the intended use of funds, Prospa will see if you meet its lending criteria by determining if your business has the cash flow to support repayments.
4. Know your security
Traditional lenders usually require the borrower to offer an asset as security against the loan. In most cases this is a property asset, or other valuable assets like vehicles or equipment. Before offering up your home as security for a small business loan, carefully consider the consequences should you default. And always consult with those who will be most affected, like your family or business partner.
If you aren’t comfortable using your house as security, then a small business loan that doesn’t require upfront security from a trusted online lender may be more appropriate.
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