Business growth is usually always a very good thing. Many individuals need a little assistance when it comes to expanding their business and managing cash flow. You may be just starting out in business and need to cover all your start-up costs. Perhaps you are established and would like to acquire more assets, buy a property for your company or refinance other lending.
What type of business loan do you need?
There are many types of business loans to choose from, such as:
- Business loan
- Business overdraft facility/line of credit
- Finance lease
- Commercial hire purchase
- Chattel mortgage (goods loan)
- Invoice finance.
When choosing the right loan to suit your business needs, you need to work with your mortgage broker to ascertain the length of the loan and the terms of the loan, and align this with what you need the loan for.
Secured and Unsecured Business Loans
When applying for a loan, there are secured loans and unsecured loans to consider. For a secured business loan, you would need to provide an asset as security for your loan, which will cover the loan if you cannot pay it back. The approval process is generally a little longer, considering the security involved which may include value assessments, proof and documentation of assets to contribute to the application. However, the interest rates tend to be lower and a higher borrowing amount than an unsecured loan is usually available.
An unsecured business loan is usually for smaller amounts and can be assessed more quickly because the lender does not need to consider physical assets as security. The cashflow and security of your business will instead be assessed, and a higher interest rate is also usually paid.
Business loan guarantors
A ‘business loan guarantor’ or ‘director’s guarantee’ is usually required when you do not provide an asset as security for your loan. A ‘first party guarantee’ is common, and simply means that you guarantee your own loan by providing security from your own assets.
However, a third-party guarantee means that you will need to have someone else guarantee your business loan, providing security from one of their own assets. In this case if you cannot pay your loan, the guarantor will be required to pay, and potentially be required to sell their said asset to cover the debt.
Business loan requirements and eligibility
There are more than a few things that can be taken into consideration when it comes to how eligible you are for a business loan:
- Your business history and experience will allow the bank or lender to be confident that your business is capable and sustainable
- Evidence and history of how much your business makes under normal circumstances will need to be shared with your lender
- Proving some sort of asset as security will help lower the lender’s loan risk
- Lenders like to know why you need the money, specifically what it will be used for, how much you will need to borrow, and when you can begin repayments. The more details you can offer in this way, the more the lender can assess your affordability and other conditions, to give confidence in lending to you.
How to get your business loan
The best place to start is to get your business finances in order and prepare a profit and loss statement or a cash flow statement as well as a business plan that clearly shows your business goals and financial position. Doing this might also help you to work out how much you need to borrow.
To begin your application process with a lender, you will need to supply at least two years of tax returns and financial statements from your business. You will also need to show some proof of individual income and give a statement of your financial position. More documents may be required along the way, but this will be enough to begin the application process.
We’re here to help you
There are so many business loan options to consider, that it really is worthwhile speaking with your mortgage broker to determine the right loan product to suit your business goals.
Disclaimer: The information provided in this fact sheet is not legal, taxation or financial planning advice. It has been prepared without considering your specific needs, objectives and personal financial situation. Before acting on this information, we recommend that you consider carefully if it is appropriate for your needs, objectives and personal financial situation. All loan products are subject to lender criteria and approval. Fees, terms and conditions apply. Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. Licensing Statement: Watson Mortgages Pty Ltd Credit Representative 525053 is authorised under Australian Credit Licence 389328.