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If you plan to start your own business, you may consider getting a business loan from a bank. However, whether it will get approved will depend on several factors, including the type of loan provider you are approaching, the shape of your business finances, and the type of funding you want to apply for. Different lenders have different criteria to assess a loan application.
For example, while some may be interested in the current status of your business cash flow, others may want to look at your business asset value. But what is common in all of them is that they want to know whether your business can repay the loan. One effective way can be typing ‘accountant near me’ on the Google search bar and having an accountant in your firm who will help you with the loan application. In addition, there are other applicable tips too, which we have discussed here.
Understanding the lender’s requirements is the foremost need before you apply for a loan. You must do thorough research on your lender to determine their requirements and what process they follow to approve the loan. When you have proper knowledge of these requirements and what your lender considers risky, you can easily determine the best way of presenting your company.
Documents are necessary for any application. Start arranging all the required documents well in advance so that you do not miss anything. An application with missing documents will slow down the procedure and disappoint the lender.
Your business’s financial information must be up-to-date so that it will not be impossible for you to show them even at short notice. Expect your lenders to ask for various information about your company’s financial history, and you have to provide accurate information in response. Information that banks usually ask for include:
Financial documentation requirements with other lenders are generally less demanding. You may have to provide only a little information for them, such as how long you have been in the business and business revenue.
Information like recent bank statements, identification, and business banking deposits are common for all loan providers in Australia.
Your professional accountant may help you in gathering all the important financial information. Some lenders, too, provide necessary support through the process. They assign dedicated loan specialists to provide application guidance.
If you can prove to your lender that you have the necessary protection against various business risks, it will increase the chances of your loan getting approved.
Credit reporting is an effective way to prove that you are taking the necessary action to manage risks associated with bad debts. A credit report will help you determine the reliability of a prospective supplier or a customer if they have proper registrations. A credit report will help you gain valuable information about your customers and help you take care of your cash flow. A higher cash flow implies higher chances of loan approval.
The loan provider will want to see if your business is generating sufficient revenue to cover the cost of a new loan and also meet current financial obligations. Especially if you approach an online lender, they will check your business’s capacity based on its actual performance.
If getting your loan approved is urgent for your business, you must look for an online lender and not a traditional one. The reason is very simple. While a bank may respond to you after almost six weeks of making the application, you can receive a response from an online lender within 24 to 48 hours.
Online lenders conduct their lending assessments mostly over the phone or online, which help them significantly reduce the processing time. Your loan can get approved on the same day you apply.
Another important factor you have to consider is what type of loan you want for your business. The two basic types are secured and unsecured loans. Based on your requirement and business position, you may choose one.
If you choose a secured loan, you have to put forward a valuable asset as a ‘security.’ These assets include land and equipment, property, and sometimes your personal assets, too, depending on the lender. The risk with this type of loan is that the lender will have full rights to sell these assets if you stop repaying.
On the other hand, there is no need to put forward business assets if you choose an unsecured loan. Rather, the loan provider may opt for a personal guarantee, giving the lender the right to take your personal assets if you fail to repay the loan.
Finally, you must think about the repayment plan that will suit your business cash flow. Options include monthly repayment and paying small amounts every fortnight to save more on interest.
Note that not every lender offers the flexibility to choose your repayment option. So, it is better to check it before you apply for a business loan.
Accountant Perth is a leading accounting consultancy in Perth that provides services in various finance and accounting areas. Their accountants are experts in providing the best financial advice to clients. Thus, getting some tips regarding a loan application can be highly beneficial and help you meet success.