From assisting kickstarting finances to open a new business, to expanding operations in an existing company, business owners seek business loans for various financial reasons.

Whether it be to keep cash flow moving, alleviate operational expenses, equipment or commercial vehicles, or long-term working capital – business loans can help steady a business through new or difficult periods or simply take things to the next level.

When applying for a business loan, there are several factors to consider and documents to provide to the lender. Having a checklist can improve your chances of approval and speed up the process.

Having a clear understanding of what is required and what lenders will generally approve (and not approve) for a business loan can mean getting approved for a loan the first time around.

Prepare or share a business plan

Business plans provide lenders with a clear blueprint for how the loan will support the business’s goals. A business plan will need to report the company's objectives, strategies, target market, competitors, and financial projections. It needs to also detail how each important aspect of the business will be managed, such as products, services, operational plans, and finances.

Financial forecast

Providing the cash flow forecast, profit and loss forecast, and balance sheet forecast is crucial for lenders to see that the business’s projections are reliable. By showing a financial forecast, lenders can understand past and current business performance and trends to determine if repayments can be paid.

Financial statements

Financial statements, which consist of a balance sheet, income statement, and cash flow, will be used to determine whether existing and proposed repayments can be met. Depending on the circumstances, some lenders may ask for the latest tax returns, business activity statements (BAS), or printouts of statements from the Australian Tax Office (ATO) portal.

Individuals with trusts or self-managed super funds (SMFs) related to the business may need additional documents for the business loan application.

Bank statements  

These statements show the business’s income, expenses, savings, and any outstanding debts – all of which help lenders assess risk. Lenders review the business’s bank statements to assess cash flow, financial obligations, and spending habits, determining if existing and proposed repayments can be met.

Personal information

Lenders often require personal information from the business owner as well as the business to undertake a credit check. Business owners will need to present personal assets and liabilities, proof of individual income, like the two most recent individual tax returns and an ATO notice of assessment, and personal banking, like loan and deposit details. New customers must also provide personal identification (driver’s license, passport).

For new businesses

New businesses or those with less than 12 months of trading history must provide the above documents in addition to cash-flow projections, business contracts of sale, and any lease agreements.

The Approval Process: The 5Cs

To evaluate business loan applications, lenders generally assess five key factors, known as the 5Cs: 

  1. Character: Character is all about trust. Lenders look at track records, credit scores, and business reputation to gauge character and, ultimately, reliability.
  2. Capacity: A lender will survey the borrower and the business’s capacity to repay the loan. This involves assessing the debt-to-income (DTI) ratio, financial forecast, cash flow, and budgeted profit and loss statement.
  3. Capital: Lenders utilise previous financial statements, any outstanding obligations to the ATO, and credit reports to verify whether the business has adequate funds to cover repayments.
  4. Conditions: Lenders look at the general conditions relating to the loan and consider the borrower’s ability to meet the terms. They also consider how repayments can be affected by external factors, like the economy and industry fluctuations.
  5. Collateral: When hard assets secure an investment, lenders feel more assured in their lending decisions. Collateral can include hard assets, real estate, vehicles, cash, inventory, and guarantors to meet repayment agreements.

Business Loan Application Simplified

Using a checklist when applying for a business loan will streamline the application process and help increase the chances of faster approval.

Before U Loan is powered by Australia’s best finance brokers, who will do all the heavy lifting for you – all you need to do is submit your details. Our network of brokers can find you the best business loans with flexible repayment agreements to suit your business’s financial needs and circumstances. Contact the team at Before U Loan today.

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