3 questions to ask before you get a small business loan
Are you thinking about applying for a small business loan to help your business grow? Before you take the plunge, here are three questions to ask yourself to make sure you’re ready to take the next step.
Question 1: What will you use the money for?
Make sure you have a plan before you look at applying for a small business loan. Your plan doesn’t need to be in writing – but you do need a firm handle on what your small business is doing now and where you want it to go in the future. And while we don’t ask you to write a business case, its good common sense for you to look at the relevant financial data and if you can calculate your ROI.
At Prospa, we know that having a solid idea of how you will use your loan to generate additional income, or manage lumpy cash flow, is a better indicator of being ready for a loan than the personal credit scores of the owners. That’s why we’ll talk to you about how your business is going overall, and your plans for using the extra funds when you apply for a loan.
Unlike a traditional lender, we don’t expect you to have a multi-page written business plan as a condition of applying. We know small business owners are time-poor, but they’re incredibly familiar every facet of their business.
Of course, having a good plan does more than help your small business navigate the loan process. It also helps you stay focused on your priorities. And by making sure you revisit it regularly, you can stay on top of where your business is going – and stay on the path to success.
If you want to get serious with planning, the Australian government offers a free template to help guide you.
Question 2: Is your credit score healthy?
Your personal credit score is a number generated by a credit reporting body that evaluates your creditworthiness and is based on your credit history. Lenders use credit scores to evaluate the probability that you will repay your debts.
This credit score will take into account your personal credit history, which will include things such as:
- How many loan applications you’ve made recently
- Current credit accounts
- Overdue accounts
- Past bankruptcy information
- Court judgments and writs against you.
A poor personal credit score can make it difficult for you to secure a business loan from one of the traditional lenders. Even if you’re approved, you may still be seen as a risk, and will usually have a higher interest rate applied to your loan.
ASIC has useful information about how to obtain a free credit report.
Here at Prospa, we do things differently. We don’t just look at your credit score when we assess your small business loan application.
Instead, we look at over 400 different pieces of data to determine the health of your business. We collate data like your business financials and staff levels, to your monthly inquiries and how much people engage with your business on social media. We use this to calculate a score of our own – a ProspaScore.
Your ProspaScore is a measure of the creditworthiness of your business, not you as an individual. Learn more about credit history scores.
Question 3: Do you have collateral to secure a loan?
Some traditional lenders require small business owners to provide collateral to secure a loan. This means you need to provide a personal asset such as your family home, or a business asset such as a piece of equipment, against your loan.
If you fail to repay the loan, your lender can take your asset to cover their costs. This means secured loans can place your family home or other significant personal assets at risk, or even make it difficult to earn an income if a vital piece of business equipment is seized. And if you don’t own an asset to use as collateral, you won’t be able to get a secured loan at all.
While secured loans give lenders a sense of security, they aren’t always necessary. For example, you don’t need security to access up to $100,000 from Prospa. Our terms are for between 3 and 24 months, and we offer flexible repayments.
So, if you don’t want to put your family home on the line, or don’t own one in the first place, you might still be eligible to get a small business loan with Prospa.
Ready to find out how much you can borrow?
Get in touch with our friendly team on 1300 882 867 or apply online now.
Subscribe to the Prospa Blog
Be inspired! Sign up to Prospa’s newsletter to receive tips, tools and small business success stories straight to your inbox.