Introduction to Business Lending
Business lending plays a vital role in helping companies access the funds they need to grow, manage cash flow, or invest in new opportunities. Business loans are designed to provide businesses with the capital required for a variety of purposes, from purchasing equipment to expanding operations. Before diving into the application process, it’s important to understand the basics of business loans, including how interest rates, repayment terms, and fees can affect your financial position. By familiarising yourself with these key elements, you’ll be better equipped to make informed decisions about borrowing money and managing your business’s finances effectively.
As a business owner, you may be able to use a loan to grow your business or ease cash flow issues. But before you can do that, you must get through the application process
When seeking business funding, it’s important to explore the different types of loans available to you. Options such as business term loans, lines of credit, and commercial property loans each come with their own unique features, interest rates, and repayment structures. To improve your chances of approval, prepare a comprehensive business plan and a detailed cash flow forecast. These documents demonstrate to lenders that your business is capable of managing repayments and using the funds effectively. By clearly outlining how you intend to use the loan and how you plan to repay it, you’ll present your business as a responsible borrower and increase your likelihood of securing the funding you need.
As a business owner, you may be able to use a loan to grow your business or ease cash flow issues. But before you can do that, you must get through the application process
There are all sorts of reasons why you may want to apply for business financing.
You may have short term cash flow issues that you need to rectify.
Or, you may need to replace a broken piece of equipment that’s vital to your business.
In the case of John from Sydney, he wanted to grow the business. His story may be like yours:
Over the course of three years, John worked hard to develop his reputation as a top-quality plumber. And his efforts paid off. In fact, he developed such a stellar reputation that his business attracted more customers than he could handle.
He needed to expand. John needed to bring some new technicians on board, as well as purchase new equipment for them. Unfortunately, he didn’t have the capital needed to undertake this expansion. When planning for growth, John also had to consider the costs involved in hiring staff and purchasing new equipment.
So, he applied for a business loan from a bank.
After getting his application approved, John could expand his plumbing business. Now, he’s able to meet the demand that comes from providing quality work.
Whatever your reasons are, you know that getting a business loan isn’t as easy as just asking for one. You need to complete a business loan application as part of the process for being approved for the loan.
The good news is, you don’t have to go through this process with no idea of what’s coming next. Regardless of the types of business loan you choose, you’ll generally follow the same set of steps.
Step #1 – Figure Out What You Want From the Loan
Before applying for a business loan, you need to know exactly what you’re going to use the loan for. All lenders will want to know the specific purpose of the loan. They’ll also want to see that you have plans in place for maximising the use of the that you ask for. This could involve presenting a new business idea if you are starting out, or outlining plans for an existing business if you are already established.
This means you need to be able to articulate your need for the loan. For an existing business, it may require you to compile your financial statements, such as profit and loss reports and tax returns, so that you can create a business plan that incorporates the loan. Your business plan should also demonstrate projected income and how this income will support your ability to repay the loan.
Step #2 – Review Your Options
You’re not limited to a single financial product when applying for business finance. There are various borrowing options available, including standard business loans, a line of credit, or credit cards. Some of these, like unsecured lines of credit or credit cards, may come with higher interest rates due to increased risk for lenders. There are also more specific forms of loans, such as equipment finance.
When exploring alternatives to standard business loans, consider other lenders beyond traditional banks, as their products, approval criteria, and speed may differ. Some loan products are tailored specifically for small business needs, while new businesses may have different requirements or options compared to established companies.
Each comes with its own requirements at the application stage. It’s crucial that you review each type of loan to figure out which one best suits your needs.
Understanding Loan Security and Business Funding
Security is a key consideration in business lending, as it reassures lenders that they have recourse if the loan cannot be repaid. Common forms of security include personal guarantees, commercial property, and business assets such as equipment or inventory. Understanding what assets you can offer as security—and the implications of doing so can help you make smarter decisions about your business’s financial future. Beyond traditional loans, it’s also worth exploring alternative business funding options like angel investors, venture capital, or crowdfunding. These sources can provide valuable funding without the need for collateral, giving your business more flexibility as it grows.
Finding the Right Lender
Choosing the right lender is essential to securing the best deal on your business loan. Different lenders offer varying interest rates, loan products, and repayment terms, so it pays to compare your options. Look for a lender with a strong reputation, responsive customer service, and flexible terms that suit your business’s needs. Consulting with a business lending specialist can be invaluable—they can help you navigate the lending landscape, identify the most suitable products, and negotiate terms that work in your favour. Taking the time to find the right lender can make a significant difference in the overall cost and success of your business loan.
Step #3 – Check Your Credit History
Your personal and business credit history play a crucial role in the business loan application process. Lenders use your credit rating to assess your reliability as a borrower, which can influence the interest rates and repayment terms you’re offered. Before applying, review your credit reports to ensure all information is accurate and up-to-date. A strong credit rating can help you secure better loan terms, while any issues should be addressed before you submit your application. If you’re unsure about your credit standing or how to improve it, consider seeking advice from a financial advisor or business lending specialist. Their expertise can help you strengthen your business credit profile and boost your chances of approval.
Step #3 – Check Your Credit History
Practically all lenders will check your personal credit rating and credit history as part of their loan approval process.
Ideally, you’ll get ahead of them and check yours before submitting your application. This gives you a chance to spot issues that could lead to your application getting refused.
For example, you may have a couple of black marks on your report due to previous missed payments. Lenders will look for a history of managing debts responsibly, so any negative marks or evidence of poor debt management can impact your chances. Or, you may even have items in your report that are there in error and need to get removed.
Understanding your current debt obligations is also important, as it helps you assess your readiness for a new loan and how additional debt might affect your financial situation.
Whatever the case may be, checking your history before applying will help. It will either give you more confidence in your application or stop you from making an application that wouldn’t get accepted.
Step #4 – Gather Your Documentation
At this point, you’re close to submitting your application. But before you do, you will need to gather any documentation that the lender will need from you. Lenders will require comprehensive financial records to assess your application.
This may include the following:
- Personal and business identification.
- Your most current business plan.
- Previous tax returns.
- Your profit and loss statements.
- Balance sheet.
- Loss statement.
- Any forecasts you have, particularly those that may relate to what you’ll do with the loan.
Try to gather everything that you think the lender may need from you so that you can provide it upon request.
Step #5 – Filling Out the Application
This is perhaps the simplest part of the process.
Typically, this will involve filling out a form that asks numerous questions about you and your business.
Answer these as accurately as possible as the lender will require you to sign a statement. This statement says that all of the details in the form are accurate, to the best of your knowledge.
The key at this stage is to ensure you fully understand the loan that you’re signing up for. Consider how taking on a new loan will affect your business’s finances, including your ability to pay and manage cash flow.
Read the loan terms and conditions closely to confirm that there are no unexpected surprises. It’s also worth double-checking the basics, such as the loan amount, repayment amount, and the loan interest rate. You should also confirm if you have a variable or fixed rate of interest, and whether the loan has a fixed term.
Check if the loan allows for early repayment, and whether there is an early repayment fee if you pay off the loan ahead of schedule. Some lenders may allow you to make lump sums to reduce your balance or pay off the loan faster without penalty, so review these options carefully.
After completing the application, submit it to your lender.
Step #6 – Wait for (And Then Receive) the Verdict
After submitting, you enter a waiting period. During this time, the lender will assess your application and supporting documentation. They will also examine your credit history. The lender will evaluate your ability to borrow and repay the loan, considering your company’s financial health and cash flow. In some cases, you may be asked to meet with a bank manager to discuss your application and present your business plan. Using this information, they will then come back to you with a verdict on your application.
The length of time that you have to wait will depend on the lender. Major banks and other established lenders may take several weeks to deliver their verdict. Established businesses with a proven financial history may experience a smoother process and quicker approval. Specialised lenders may be able to provide you with a verdict within 24 hours.
During this stage, your lender may also ask for additional documentation to supplement their research. They may request a personal guarantee or evidence of your own money invested in the business to strengthen your application. Aim to provide this as soon as possible, if requested. Taking too long will delay the application process.
Are You Ready to Apply for Your Loan?
While some financing options may have other steps involved not indicated here, this is the general business loan process.
If you follow each of these steps, you should find the application process to be a smooth and straightforward experience.
Perhaps you feel prepared to make your application after reading these steps? If so, Unsecured Finance New Zealand offers several business loan products that may suit your needs.
Apply online today and you’ll receive a quick verdict on your application. If you have any questions, please contact us.
