Getting the right loan at key stages of your business growth is crucial for success. It becomes all the more challenging when you are a start-up with not much to show for a track record to get access to quick business loans. Most of the conventional modes of financing would require collateral for the loans and would be unwilling to provide unsecured business loans. If you have a low credit score, then that reduces your chances of getting a business loan.
In order to address this problem for new businesses and established businesses, alternative financing options have entered the business loan segment to mitigate their problems.
What do lenders look for when you apply for small business loans in Australia?
There are five different parameters that each of the small business loans in Australia are judged on. Hence, if you take care of these parameters, you are most likely to maximize your chances of getting it approved.
The character of any business is determined by the level of responsibility taken to meet the obligations of the previous lenders and banks. This also deals with the credit score of the firm. So, startup business loans with bad credit history are often rejected.
The capacity of any business is determined by the financial condition and prosperity of the work process and cash flow. It is done to judge whether or not any particular startup will be capable of repaying the loan.
More often than not, business loans with bad credit history are approved if the lenders see that the owner has also invested as capital. This stands as a good indication as to how much the owner or founder is serious about the business.
Often, small business loans with no collateral are not approved solely because the lenders fail to find any assurance with the repayment. Though collateral is optional and is only offered to strengthen the application, the lack of one, paired with negligible character, capacity and capital, would surely make the lenders turn their heads away.
Lastly, even after small business startup loans with no collateral are approved, the rate of interest and tenure of repayment depends on the risk associated. If the lender feels that any specific startup poses to be a risk, the tenure is shortened or the interest rate is increased to mitigate the losses.
If you have a startup business and want to take a business loan, taking care of the five ‘C’s would help a lot to get the lenders approval. Hubbe, for example, is a very reliable small business loan lender in Australia and boasts of a very seamless and hassle-free application and approval process.
Maximise Your Chances of Getting Small Business Loans in Australia
Both established businesses and start-ups require quick business loans to expand, and alternate lenders are a more convenient source. However, it is important to choose the lender that provides the best terms and conditions for unsecured business loans in Australia with regard to your business. The challenge is that too much information can be misleading.
Here is your guide to maximising your chances of getting small business loans:
1. Industry experience
The lender needs to have proven expertise and specialised knowledge of the industry you are operating in. These lenders will understand your challenges better as they have worked with businesses in your industry previously.
You need to inquire if the lender has previous experience in financing small businesses, whether they will be able to adapt to your constantly changing funding needs and to showcase their strengths with respect to your industry. If they can satisfactorily answer these questions, then you can make a decision.
Compared to convention lenders, alternative lenders provide faster processing of loans, having shorter tenures, require minimal paperwork and no collateral. For businessmen with low credit scores, they have start-up business loans with bad credit.
2. Your credit score
A higher credit score would ensure lower processing time and favorable terms and conditions for start-up business loans. A credit score, which ranges between 0 to 1200, indicates your loan repayment capabilities. Though alternative lenders provide loans even if your credit score is low, your chances for acceptance are higher with a higher score. You can improve your credit score by making timely payment of your bills and ensuring there are no defaults. Keep your debts to the minimum. Generally, businesses with at least two years worth of business are provided larger loans.
3. Financial record maintenance
There are some financial documents which are mandatory for securing business loans for new businesses. They are:
- Tax returns, individual and business
- Profit and loss account statements
- Balance Sheet
- Projections of cash flow
- Loan documents
You may be required to submit additional documents depending on the type of loan you need. Additional projections and an executive business summary will improve your chances. Make sure the financial information is provided in a user-friendly format.
4. Loan jargon
In order to ensure the success of your business loan application, familiarise yourself with certain financial jargon or terms.
- Unsecured business loans, as such, do not require any security or collateral.
- Secured loans are provided to established businesses and require asset(s) as collateral.
- Lines of credit are an arrangement between the bank and the business where a certain credit limit is provided to the business. The borrower has the flexibility of using only the amount required and paying interest on the same.
- Under merchant cash advance, cash is advanced to a business, and the lender takes a certain percentage or part of your debit and credit card sales along with a fee.
- Equipment finance is a form of secured lending where the equipment is provided as collateral for a business loan.
5. Business pitch
The better you pitch yourself, the better chances your business has of getting the required loan!
You need to be precise about:
- The loan amount with supporting data
- Specific reason for seeking the loan, like upgrading equipment or refinancing existing loans
- How the loan will lead to cash inflows to pay for the loan installments
- Monthly or yearly sales and profit statements to show your repayment capacity
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