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Increase your chances when applying for a business loan print Print

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Whether you’re starting up a new business, looking to expand your existing one, or buying a business, you’ll possibly have to apply for business finance at some stage. Banks are looking for specific things when they’re considering your application, so we’ve outlined them here to help you increase your chances of that application being successful.

The first steps

Before you decide to apply for business finance, it’s important to have all the information at hand. The more organised you are, the better your chances of success.

Applying for business finance

Before you go and see your ANZ Business Specialist, make sure you have documents to show:

  • How much it’ll cost to set up, buy or expand the business, including what stock, equipment, set-up costs or working capital you’ll need.
  • How much you think you’ll need to borrow, and how much you’re contributing yourself from sources such as savings, assistance from family, or any investors you already have on board.
  • What you’ll use to secure the loan if anything. Borrowing against your house is common, but there are other options available.
  • If you’re applying for finance to lease premises, what the lease terms are. It’s important that the lease terms fit with the loan and the terms being requested.
  • If you’re buying a new business, whether there is a restraint of trade and a turnover warranty. Both of these should be included on the sale and purchase agreement.
  • How you intend to repay the loan, ideally from the extra profit the business will make from the extra capital you’ve borrowed.
  • If you’ve got any other sources of income you can use to repay the loan, or any other debt.

If you can provide the bank with that information at the start, they will be reassured you’ve thought carefully about the basics.

What do you need to borrow?

Generally you’re looking to borrow as little as possible, but enough so that you won’t have to borrow again for a while. It’s better to add a small buffer now which you may not require, than going back to the bank and explaining your estimate was wrong.

You also have to show how much of your own money you’re planning to use. For example, if you were buying a business and it cost $500k to buy and you have $200k of your own money, you need to borrow $300k.

If you need $300k for new equipment the bank will want to know your existing assets total, so they can get an idea of what percentage of assets the new loan takes. Having $1m in assets and wishing to borrow $200k is better than the other way around.

How will you service the loan?

It’s important to show that whatever you borrow, you have the ability to pay it back. No bank wants you to default on a loan. It’s easier for everyone if you provide:

  • A Personal Statement of Financial Position. This outlines everything you own as well as what you owe, and your income and living expenses (including those of your partner if you have one, or any dependents).
  • Details of how much you intend to take from the business as a salary or wage, and if you’ve got another source of funds in reserve.
  • A business plan. The bank will possibly want to see it before they’ll consider lending you any money. Our article on business plans has as a template that you can use.
  • A cash flow forecast. Your bank will possibly request a cash flow forecast. Our article on cash flow forecasting has some great tips, as well as a template to help you get started.

Security for the loan

The bank likes to know it can get its money back. So you often have to provide some kind of security, such as real estate or business assets. You’ll likely have to include a registered valuation for any property security. For a commercial property, a copy of the lease is handy.

If you’re borrowing in the name of a company or trust, you’ll usually be asked to personally guarantee the loan.

How will you run the business?

In addition to your business plan, you’ll also want to:

  • Provide details of who owns the business, whether you’ll be working in the business full-time, and who else is involved in management.
  • Provide details of the operational structure. Are you a company, partnership, sole trader or trust?
  • Show that you’ve had professional advice from your financial adviser or accountant. They also like to know you’ve sought legal advice.

Provide a resume

Show what experience you have in both your industry and in running a business. Include:

  • Past business experience.
  • Details about any business partners and key personnel.
  • Training and support you’ll receive.
  • Any qualifications that relate to your industry and business.

Financials

It’s important to show that your business can generate enough cash to meet your outgoings (with your new loan added in) and provide an income. For example;

You are also best to describe why you think your sales are achievable, how you’ll achieve your projected profit margins, and any key expense items. Make sure you allow for the extra costs in achieving higher sales.

Summary

Remember, the more prepared you are, the better your chances of your application being successful. The bank likes to see that you’re organised and diligent, and your application is one of the key ways they’ll determine that. So make sure you’ve done all your homework, and that you’ve got all the details at your fingertips. And our final expert tip: once you’ve made an appointment with a business banker, send them your prepared documents ahead of time so that they have time to review before hand and that your meeting is productive.

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