A business loan refers to when a bank or other financial institution lends money to businesses to assist with financing. Businesses generally seek out commercial loans to help fund expansion and growth, manage cash flow, start-up costs, capital investment, or refinancing, among many other business purposes.

In Australia, businesses repay the loan over an agreed period of time and generally have flexibility over how the money is repaid. Businesses can pay a fixed or variable interest rate, opt for principal and interest or interest-only repayments, and choose the frequency of the payment – whether it's monthly, quarterly, or yearly.

If you're interested in applying for a business loan in Australia, there are a few things you need to have ready to go to ensure the application process is smooth-sailing.

1. Identification

When applying for a business loan in Australia, you’ll need to provide identification - whether you’re yet to start your business or have already established a business. Identification required for a business loan includes your driver’s licence or passport and your position in the company.

If you’re a director or shareholder in a business, lenders may ask for information regarding your financial contribution, like your income tax return, assets and liabilities, loans or other account statements, proof of income outside your business, and details of your personal expenses and debts.

2. Bank statements

Lenders can ask for your latest bank statement to better understand your business and your personal financial position. Details in the bank statement include your personal income, your business income, your savings, and any loans or credit cards you may have. Valuable for lenders, bank statements provide a detailed financial history for lenders to assess your creditworthiness, income stability, and repayment capacity.
3. Financial information

Financial statements assess the financial performance of your business to determine if you can meet the agreed repayments. Most financial statements for a business loan consist of a balance sheet, an income statement, and sometimes a cash-flow statement for the last two years. These statements will paint a clear picture of assets, liabilities, net worth position, income, and expenses for the lender.

You may also be asked to provide a copy of your latest full tax portal report. This includes your most recent tax returns, business activity statements (BAS), or printouts of statements from your Australian Tax Office (ATO) portal. You may be required to provide additional documents if any trusts of self-managed super funds are related to your business, so check with your lender to make sure you have all the required financial documents.

4. Information about your business

For newer businesses, your lender may require a business plan to provide a clear understanding of your commercial operations, plans, and goals. When a business is new, lenders do not have financial information to base their decision on, so it’s essential to provide a business plan to allow lenders to make an informed financial decision.

A business plan should outline products, services, customers, future potential of the business, where the company sits in the market, and your understanding of the market, as well as information about competing or similar businesses.
5. Purpose of the loan

One of the first questions you’ll be asked by a lender is, “What is the purpose of the loan?”. Having an understanding of the purpose of the loan and being clear on intentions will determine whether the money is going to be used for something deemed appropriate and whether it aligns with repayment plans.

Having a specific purpose for the loan will also help to seek the most suitable loan for these goals. When you have a clear purpose and apply for a suitable loan, you can avoid unnecessary debt, successfully determine the length of the loan, understand potential additional costs involved in the business loan application process, and determine whether or not you can meet your repayment schedule.