Your Ultimate Checklist for Taking Out a Commercial or Business Loan
2020 is the year of the expanding startup and small business. If you’ve laid the groundwork in 2019, then your business is ripe to catch the wave of profitability that many market analysts say is coming. However, you must be financially in place to meet the growth opportunities that will increase your bottom line.
The most common and convenient way to get financial leverage is through a commercial or business loan.
Does this mean it is the only way or the best way for you? In most cases, low interest rates and flexible payment plans are incredibly advantageous. Add to this an aggressive approval process that will get you funds quickly, and you may not have many drawbacks that can get in the way of your success.
Here’s your six-step checklist to get you ready for a business loan.
#1 Do Comprehensive Research
Before you decide on any financial vehicle for your business expansion, you should be able to definitively answer the following questions:
- Why do you need a loan? What aspects of the business will you be using the money for? Do you need a safety net to keep payroll going during cash-flow hiccups? Do you need money for more inventory? You will need to detail what you need specifically for a professional lender to consider your proposal.
- What kind of loan do you need? There are different kinds of loans, including a short-term cash-flow loan, a line of credit, or an accounts receivable financing loan. You may be able to negotiate a lower interest rate or a more flexible payment schedule depending on the leverage that your business already has.
- What kind of loan do you qualify for? Lenders are likely to consider startup companies who have established a track record of performance. The longer you can stay in business without a loan, the more likely you are to get one from a lender once you go in. In general, try to maintain your company for six months without a lender, although some will require a history of two years or more.
- How much money do you actually need? Have you taken all of your financial needs into account? Most business owners believe that if they forego a salary for themselves, underestimate expenses, and leave no cushion for emergencies, such as lost product and disaster recovery, they are more likely to get a loan. What is likely to happen is that the lender will bring up the fact that the proposal is incomplete and send you back to the drawing board.
#2 Study Your Competitors
Your business is not the only business that you need to study in order to get a loan. You also need to keep tabs with your competition to learn from them and find ways to do better.
Here are the questions that can guide you as you analyse your competition and improve your own startup so that you look great in front of potential lenders and investors:
- What do they sell? Find out what products or services various customers buy from them, and how they do their marketing.
- How are their products/services priced? The pricing on your competitors’ offerings makes a huge difference in the money necessary to support them. Lenders will look at the competitiveness of your product on pricing to determine if you’re going to make the money back on the loan.
- What’s their market reputation? Is there a gap that you can fill in the marketplace because of something that your rivals have missed? Take stock of their social media threads and online reviews. All of this is information that you can bring in to convince a lender to go with you.
- What are their strengths and weaknesses? Your product is actually not what you are selling to lenders. Financial pros are more interested in the business surrounding your product. As such, you must understand the strengths and weaknesses of your competition so you can take advantage of them.
- How can you counter their strengths and take advantage of their weak points? This is what lenders will be looking for: solutions. Describe how you can take advantage of your competitions’ weak points, and you will be more likely to get funded.
#3 Assess Your Past Business Performance
You must be ready to show your financial strength to any lender. Is your business best positioned for loan approval? More importantly, do you have the documentation to prove your assertions? Simple bookkeeping tools can help you tremendously in this effort.
Make sure that the financial history of your business is completely separated from your personal accounts and expenses. Lenders want to see that you can separate your own personal and business lives before investing in your business.
#4 Look at Your Personal Credit History
In most cases, you will need to personally guarantee your first business loan. If this is the case, lenders will assess your personal credit to determine your eligibility for a business loan. Your personal life is your first business, after all.
Before you sit down with a banker, make sure that you have done all your homework on your personal credit score.
#5 Determine Assets as Personal Security
If you have personal assets that can serve as collateral, you are in a better situation than most. Determine what you are ready to put on the line. You may also be able to leverage business assets like large vehicles for factoring loans in some cases.
#6 Get Your Paperwork Ready
Once you have all of your ducks in a row, make sure that you have it all written down in the format that lenders want to see. The less work that a lender needs to do, the more likely you are to get the money you need.
As a starting point, here are the documents to support your loan application:
- Contract of sale for commercial premises
- Valuation documents or quotes for machinery, vehicles and other equipment
- Business plan and financial projections, including market and competitor assessment
- Business financial records for the past two financial reporting years
- Personal financial records for the past two financial reporting years
- Valuation documents for any personal assets offered as loan security
#7 Approach a Broker
As an owner of a growing business, you know that time is one of your most precious resources. Taking the DIY route to apply for a business loan can be expensive as it can consume your time, which you could have used to do more meaningful tasks for the business.
When you’re pressed for time and you have a myriad of lending options to choose from, it’s easy to be overwhelmed. This is where brokers can help you.
A business loan broker can save the hours you would spend researching, comparing, and applying to multiple loan products on your own.
Over the years, brokering companies have amassed business finance and lending acumen and have built a widespread network of competent lenders. So you can be confident that they can get you the best deal that you wouldn’t otherwise get on your own.
Looking for the right loan at the right rate for your commercial investment or business can be daunting and time consuming. Let us help you secure funds to grow your business.
At Shore Financial, we can take your business or commercial loan application to multiple lenders across Australia and return to you with only the best deals that suit your situation.
Ready to take your business to greater heights? We’re with you every step of the way. Leave us a message, and we’ll get in touch soon.
Disclaimer: This is general information only and should not be taken as financial advice. Please speak to a Shore financial planning professional before making a decision on your home loan.