4 tips to maximise your chances of a quick business finance approval
As most small business operators know, getting a finance approval can be challenging. Nevertheless, surveys show that up to 80% of Australian small businesses face cash flow difficulties at some point each year, so the need for finance to smooth cash flows is nonetheless apparent.
Determine whether you want to offer collateral
Major lenders often require the borrower to offer an asset as security against the loan, in most cases a property asset, and less commonly, other valuable assets like vehicles or equipment. Before offering up your family home as security for a small business loan, you should think carefully about the degree of risk and the consequences, and consult with those who may be affected, like your family.
If you are not comfortable with using your house as security for the loan, then a loan secured against an invoice, your debtors or an unsecured small business loan may be more appropriate. Similarly, if you don’t have at least 12-24 months worth of stable and profitable trading history, applying for a secured loan may likely be the cheapest (if not the only) alternative.
Dig up your supporting documents
Most mainstream and low cost lenders will demand a significant amount of paperwork relevant to your business’ prospects of success, and often will not sign off an application without it. Such paperwork can include P&L, cash flow forecast, revenue projections, insurance details, and bank statements going back 3-12 months..
A new breed of predominately online lenders can make life much easier for you if you use cloud accounting software and/or are seeking a relatively small loan size (typically under $50,000). As compared to mainstream lenders you may only be required to provide ID, business registration details and access to your bank or accounting data. For larger loans (typically over $50,000), often some basic financial documentation like P&L and cash flow are required to make sure your business is capable of making repayments.
Check your personal credit score and business credit history
When applying for a small business loan with a traditional lender, your personal credit score and business credit history usually form part of the core reasons why your application may be approved or declined. The banks will definitely obtain a copy of your credit report, so it’s crucial you examine yours before you apply, to understand what sort of negotiating platform you’re starting from.
Even if you think your record is clean, we suggest you 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 added. Credit providers may take a negative view of a high number of 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 a free copy of your personal credit report and correct any wrong information.
Contact any of these credit reporting agencies for a copy of your personal credit file:
For a copy of your business credit file contact any of the following:
- Dunn & Bradstreet
- Naritas (approved applicants are entitled to assistance obtaining a free copy via their credit adviser. To make an enquiry and obtain a copy of your business credit data, click here).
Prepare an information memorandum (IM)
Obtaining a small business loan from your bank is essentially a pitch. You will need to sell yourself, your business, and your plans for the future while being both professional, factual & concise.
This can be daunting for those with little experience presenting or selling, so make sure you understand what the lender is looking for and prepare your IM accordingly . Consider all the potential negatives for a lender and how you might counteract them in your proposal. It pays to be ready with evidence that can back up your claims, so be sure to prove your ROI, or showcase your business growth in easy-to-read graphs and charts.
Fortunately, not all lenders require you to prepare an IM to accompany your finance application. Similarly, for the ones that do, a suitably qualified and experienced credit adviser can be of assistance in ensuring that the IM is prepared professionally and in the least time necessary to get the right outcome.
Got questions? Need assistance with managing your business cash-flow?
The team at Naritas are experts in delivering timely guidance & finance approvals. We have over 100 lenders on our panel & a high quality team of dedicated credit advisers to steer you efficiently through the approval process.