A lot of entrepreneurs struggle when trying to figure out how to get a small business loan. With these five tips, you’ll improve your chances.
Do you know how to apply for a business loan?
It’s a question that trips many new entrepreneurs up. Having never dealt with the business arm of a bank before, you may not realise the requirements they have to secure a loan. Banks often evaluate your company’s credit rating and may review your personal credit history, especially if your business is new.
This can lead to rejections, which makes it even harder to get a loan.
Of course, you don’t want that to happen. A small business loan can do wonders for your business, as Michael Baker discovered:
Michael is the latest in a six-generation line of decorators based in Queensland. He found himself in need of funds after several builders delayed payments for work he’d completed.
In need of extra funding, he applied for a small business loan.
The loan allowed him to stabilise the business during a difficult time. And after a period of decline, he’s managed to start growing his business again with the hiring of two new people.
Failing to figure out how to get a small business loan would have meant the end of Michael’s business.
Maybe you find yourself in a similar situation. If so, you need to get your application approved quickly so that you can move forward.
These are the five tips that will help you do it.
Creating a Business Plan That Lenders Will Love
A well-crafted business plan is your ticket to impressing lenders and securing the business funding you need. Lenders want to see that you have a clear vision for your business, backed by solid financial data and realistic goals. Start with a concise executive summary that outlines your business’s purpose, target market, and growth strategy.
Be sure to include detailed financial statements, such as a profit and loss statement, balance sheet, and cash flow forecast. These documents help lenders assess your financial position and determine whether your business can handle loan repayments. Highlight how the funds from the business loan will be used—whether it’s for new equipment, expanding operations, or smoothing out cash flow.
Don’t forget to address potential risks and how you plan to manage them. A transparent, well-organized business plan shows lenders that you’re serious about your business and have a strategy for success. This not only increases your chances of approval but can also help you secure the best deal with lower interest rates and more favorable terms.
Tip #1 – Know the Reason and Amount Ahead of Time
The reason for the loan is one of the first things that a lender will want to know when you apply.
You need to provide a specific reason and prove that you’ve calculated an accurate figure for resolving whatever issue that you have.
Failure to articulate what you need the loan for may lead to a lender concluding that you don’t really need it.
Furthermore, it means that you don’t know what to do with the money should you get it.
Sit down with your team and outline the specific problems you want to solve. Have a plan of action in place so that you can present it to a lender. Common reasons for getting a small business loan include:
- Solving cash flow problems, as was the case for Michael.
- Purchasing equipment or inventory for your business.
- Funding further growth.
Before deciding, take time to research and compare different borrowing options, such as personal and business loans, to ensure you choose the best fit for your needs.
Prepare a presentation ahead of time that wraps up your reason for the loan into a wider business plan. The goal is to prove that you’re not a risk and that the loan substantially benefits the business.
Tip #2 – Examine the Potential Expense
You can usually work out approximately how much a lender will ask you to repay over a set amount of time. Many lenders even provide calculators on their websites to help with this.
It’s crucial that you look at the outgoings when working out how to apply for a business loan. Make sure to consider the total cost of the loan, including interest and any additional charges, so you understand the full expense involved when planning your repayments.
Your goal is to figure out how much you can comfortably afford to repay each month.
A loan with a short term and low interest rate may seem appealing at first. But that short term also means higher repayments. If you can’t afford them, you put your business in jeopardy.
Examine your cash flow forecasts so that you know what you can afford. Use that information to decide on an appropriate term and to figure out which lenders can’t help you.
Tip #3 – Be Transparent At All Times
If you’re in difficult financial straits, it can feel tempting to hide your situation from lenders.
This is a mistake and it’s not how to get a small business loan
Many lenders will want to examine your business documentation before approving your application. They’ll also conduct their own checks into your credit history and the company’s viability.
Make sure you maintain accurate books that you can present to the lender as needed. Strong accounting practices simplify the process of providing required documentation and help build lender trust. Be completely honest about your situation. Remember that a lender will likely refuse your application if they feel that you’re hiding something.
Tip #4 – Review Your Credit Score Beforehand
As mentioned, most lenders examine your credit score during the application process. If you have a bad credit history, trying to figure out how to apply for a business loan may not help.
You need to fix the issue first.
There are several services that allow you to view your credit history. These include Equifax and Experian.
Make sure you know where you stand before you apply. If you have a bad credit history, it’s worth taking steps to improve your score first. Remember that failed loan applications often get registered as black marks on your credit score. This can create a vicious cycle where every rejection worsens your score, which makes it even harder to apply for a loan.
Tip #5 – Understand the Fees
Sometimes, a loan may look like a good deal based on the marketing.
But when you find out more about it, you discover that there are several fees attached that could hurt your business.
It’s crucial that you examine the fine print and quiz the lender about any additional fees. Working out how to apply for a business loan isn’t just about improving your application.
It’s also about ensuring you choose a loan that works for your business.
There are several potential fees that you need to look out for. These include the following:
- Establishment fees.
- Exit fees.
- Fees for early repayment.
- Any monthly fees that the lender may charge.
Additionally, check if the loan offers fixed interest rates, as these can provide stability and predictability for your budgeting and financial planning.
It’s also worth looking into the penalties for late repayments to ensure they’re not especially large.
Managing Cash Flow for Loan Success
Strong cash flow is one of the most important factors lenders consider when reviewing business loan applications. Before borrowing money, make sure you have a clear understanding of your business’s cash flow patterns. Prepare a cash flow forecast that projects your income and expenses over the coming months. This will help you determine how much you can afford to borrow and repay without putting your business at risk.
Lenders want to see that your business generates enough cash to cover loan repayments, as well as other operating costs. If your cash flow is inconsistent, consider ways to improve it—such as speeding up customer payments, negotiating better terms with suppliers, or cutting unnecessary expenses.
By demonstrating strong cash flow management, you’ll not only boost your chances of getting approved for a small business loan, but you’ll also be better prepared to handle the financial responsibilities that come with borrowing. This proactive approach can make your business more resilient and attractive to lenders.
Alternative Funding Options to Consider
While traditional business loans are a popular choice, they’re not the only way to finance your business. Depending on your needs and financial situation, you might consider alternative lending options such as asset finance, unsecured loans, or a line of credit. Asset finance allows you to borrow against the value of equipment or commercial property, which can be a good option if you need new equipment or vehicles.
Unsecured business loans don’t require collateral, making them ideal for businesses without significant assets. However, they may come with higher interest rates. A line of credit offers flexible access to funds, allowing you to borrow and repay as needed—perfect for managing short-term cash flow gaps.
Some small business owners also use personal loans or seek investment from private investors. Each option has its own pros and cons, so it’s important to compare interest rates, fees, and repayment terms to find the best deal for your business. Exploring a range of lending options can help you secure the funding you need to keep your business moving forward.
Common Mistakes to Avoid When Applying
Applying for a business loan can be a complex process, and even small mistakes can lead to delays or rejections. One common error is submitting incomplete or inaccurate financial data—lenders rely on your profit and loss statement, balance sheet, and cash flow forecast to assess your application, so make sure these documents are up to date and accurate.
Another mistake is not shopping around for the best deal. Interest rates, fees, and loan terms can vary widely between lenders, so take the time to compare your options before deciding. Overestimating your ability to repay or underestimating the total amount you need can also cause problems down the line.
Finally, avoid applying for multiple loans at once, as this can negatively impact your credit rating. Take a strategic approach, prepare thoroughly, and seek advice if you’re unsure about any part of the application process. By steering clear of these common pitfalls, you’ll improve your chances of securing the right business funding for your needs.
Loan Repayment and Management Strategies
Once your business loan is approved, it’s essential to have a plan in place for managing repayments. Set up a clear repayment schedule and incorporate loan repayments into your monthly budget to ensure you never miss a payment. Regularly monitor your cash flow to make sure you can meet your obligations, and adjust your spending if necessary.
If your financial situation improves, consider making extra payments to reduce the total interest you pay over the life of the loan. Some loans allow for early repayment without penalties, so check your loan agreement for details. If you find yourself struggling with repayments, talk to your lender as soon as possible—they may be able to offer support or restructure your loan.
Maintaining a good repayment record not only protects your credit rating but also puts you in a stronger position to access additional business funding in the future. By managing your loan responsibly, you’ll help your business achieve its goals and set the stage for long-term growth.
Work With a Lender Who Wants to Help You
There’s one final tip to consider when thinking about how to get a small business loan.
Find a lender who wants to help you.
That’s exactly what Unsecured Finance New Zealand offers. We specialize in business lending for small businesses and have helped thousands of satisfied customers across New Zealand. We offer unsecured business loans of up to $300,000.
Applicants must be a New Zealand citizen or permanent resident to qualify for a loan. You will also need a verified bank account for online verification and fund disbursement.
Our commitment to excellent customer service means you’ll receive personalized support throughout the business lending process.
And you don’t have to worry about how to apply for a business loan with us. You can apply via our website in a matter of minutes and we make it as simple as possible for you.
Are you ready to get started?
Check out these five essential tips for a successful business loan application before you apply Apply for an unsecured business loan today and receive a response within 24 hours.
