If you are looking for easy ways to get a business loan without collateral, then you must do everything to qualify – including knowing all the factors that affect business loan application in Australia.
Whether you run a small or large company, when it comes to looking to grow the business or if you are looking at a start-up, accessing finance can be challenging, particularly without having existing property as security.
This is the case for most due to the global financial crisis conditions getting better but the process to obtain funds, especially from the traditional lenders such as the banks, being lengthy and onerous.
Even getting the business loan application together is a process that, unless you are aware of the factors that can affect the application, can be a frustrating one.
For the small to medium enterprise (and this is a sector that contributes 56% of GDP), it is vital to have access to the business loans needed to grow and to survive. (Source Small Business Counts 2019, Australian Small Business and Family Enterprise Ombudsman)
Understanding what can affect your loan application will assist in maximising your chances of a successful application to a mortgage broker.
Melbourne based specialists are also a very good source of information and advice as well but let’s look at the 6 key factors that could affect your business loan application in Australia.
1. Poor Credit Rating
Even if there’s a way you can get a business loan with no money, having a poor credit rating will never allow happen.
One of the ways in which to determine the creditability of a borrower is to review their credit score or rating.
If the credit rating is poor, because it shows that in the past you have failed to payback any debits (credit card bills, personal loans etc) this could be a mitigating factor in not getting your loan approved.
There are a number of ways in which you can check your credit score online, so before considering a loan run, check on your credit rate.
Usually scores of less than 700 means you stand less of a chance of being successful in your loan application. If this is the case, you need to start to fix this before applying for a loan.
2. No Business Plan in Place
When it comes to finance, get all your ideas down on paper.
Unless you have a formal plan in place of how to grow and develop the business, with a forecast budget and have considered all the strengths, weaknesses, opportunities and threats (known as a SWOT analysis), your small business loan application will fall at the first hurdle.
A mortgage broker, Melbourne based lender will expect to see a standard business plan with an explanation of what finance you need and how you will use it.
If you can expand on why you need $50,000 showing that $20k will be used for upgrades, $10k for advertising and $20k for the inventory in advance of the new season for example, this gives the lender more confidence in your business abilities.
3. Limited Cash Flow and No Evidence of Collateral
One of the first things that a lender is going to scrutinise is how much cash you have on hand to repay a loan.
So before putting in your application, you need to sit down and carry out a cash flow analysis.
In fact, this should be the first point you consider when it comes to determining if you can afford to take out a small business loan.
Your financial adviser can give you further information on your current capacity but there is a simple calculation you can do to see how much loan repayment you can afford to pay.
Here’s how to do the loan repayment plan calculation.
Divide your net operating income by total annual debt and this calculates debt service coverage ratio.
If cash flow is equal to monthly loan repayment, you will have a 1.0 ratio. A slightly higher ratio is preferred by lenders because it shows there is a little more of a buffer built into your finances.
Anything less than 1.0 will affect your business loan application, so you need to revisit your finances.
A number of lenders will need to see evidence of collateral which could be personal assets outside the business as well as business assets.
If you are buying equipment and other assets with the loan, you should assume these are going to be used as collateral against the borrowed funds.
If you have not evidently shown them any form of collateral, this could be a factor that will hinder your small business loan application.
4. Not Seeking Expert Advice
This goes back to the planning aspect of the business and lenders want to see that the applicant has sought recent and relevant advice from knowledgeable and experienced financial advisors.
There are a number of business advisors and mentors who are well placed to help individuals working in the same sector.
These business advisors will help you identify some of the perils and pitfalls, as well as help you with the sort of capital that is going to be more important to your enterprise.
Business networking groups and local Chamber of Commerce are also a great source of advice.
Related: 5 Steps to Securing a Business Loan
If you are still unsure about the different types of business loans that are on offer, then check out the websites of a recommended mortgage broker.
Melbourne businesses have benefited from flexible types of lending packages from invoice financing to overdraft and term loans.
Understanding what is on offer in the marketplace means that you can ensure you are applying for the right sort of loan to suit you and your company.
5. Lack of Organization
Business loan applicants need to show themselves in the best possible light and this also comes down to how they present themselves and their loan application.
If there are key documents missing or the application is not fully completed, this is an indication of how you may conduct your business – and no lender will take that from you.
You are aiming to instil confidence in a lender therefore get everything in order.
Prepare all the paperwork in advance and make sure you have your income tax returns, business and personal banking statements, a business plan and any loan history.
Professional insurance indemnity, business licence and franchise agreements, along with any statutory documentation required to run the business, should also be in order and up to date.
Ask the lender if they have a small business loan application checklist you may need to work with and once you have completed the application form, get a colleague or partner to check through the loan application.
Ensure they are no careless mistakes because this will slow down the process and leave a question mark from the lenders as to your organisational ability.
If you cannot get the form completed properly, are you someone they want to entrust with their money?
6. Too Many Applications
Tempting though it may be to try to hedge your bets and make a number of loan applications, this does raise concerns with lenders.
As consumers, we want to shop around and get the best possible choice and options for our money but in the world of business loan applications, too many applications will work against you.
It is far better to do the research, get your planning and preparation in place and make an informed decision as to who you are going to apply to for a loan.
And remember, any lending specialist is going to be more than happy to answer questions about the products they offer.
They should also be able to work out the annual percentage rate of their loan offer and discuss the range of options they have available.
If they offer a brokerage service, then a reputable firm will also be able to give further advice on ensuring you submit all the required information and evidence needed to make your application a successful one.