Finance Dollars & Sense Applying for a business loan? Here are some pointers
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Applying for a business loan? Here are some pointers

business loan application how to apply
Aspiring entrepreneurs must draw up a strong business plan if they want to borrow from the bank. Photo: Getty
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You’ve got bold plans and you want the bank to lend you cash to help turn your business idea into a reality.

Obviously it’s important to go to the bank with a solid business plan, but what does that actually look like?

And what other factors count towards you getting approved or rejected for a business loan?

Bendigo and Adelaide Bank’s head of small business banking, Joe Formichella, said start-up entrepreneurs need to provide a detailed picture of their financial history and business projections.

“Adaptability, innovation and resilience are all key common themes in successful business ideas and businesses,” he said.

“This old adage stands true: Being courageous without being cautious is being reckless and being cautious without courage is cowardice.

“Make sure you get the balance right.”

Business loan application tips

Commonwealth Bank’s executive general manager of small business banking Claire Roberts said cash flow issues are one of the biggest reasons why small businesses fail in their first few years.

“Conducting regular forecasts, keeping a close eye on your cash flow with the right tools, and having emergency savings are a few ways to help you prepare for cash flow shortfall and make the most out of any surplus,” she said.

Ms Roberts said aspiring entrepreneurs need to work out what sets them apart and use that to their advantage.

“Really research and understand what your customers want and what makes your competitor offering different to others in the market,” she said.

It’s also smart to listen to feedback from seasoned business owners.

“While getting constructive feedback can feel confronting, it’s going to help turn your business into a better shape,” Ms Roberts said.

A good plan

Mr Formichella said a strong business plan should include what will make the business unique, its history and the products and services it will produce.

It should also detail the competitive landscape, key customers and suppliers, and outline the corporate and ownership structure of the business.

Would-be business owners need to provide financial and bank statements, from which the bank will assess the business owner’s ability to service a new loan, Mr Formichella said.

“The bank will also request projections for at least a 12-month period to understand what the future state of the business will look like to ensure any additional debt can be serviced, over and above existing commitments,” he said.

Common red flags

Mr Formichella said a poorly prepared business plan is among several common red flags that can result in applicants being turned down for a business loan.

Poor personal or business credit history, inconsistent cash flow, and a lack of evidence to demonstrate how they intend to service the loan can also lead to a rejection, as well as an over-reliance on a few key customers or suppliers.

Before you leap

Before quitting your 9-5 to become an entrepreneur, there are a few hoops you should jump through to get off to a solid start.

Getting independent financial and legal advice is important and you should also have an accountant review your business plan.

Ensure you get advice about the correct business trading structure – whether you will operate as a sole trader, partnership, trust or company – because each has its benefits and risks.

“[You should have] previous experience and knowledge of the industry in which the business will operate [and] evidence of support or commitment from prospective customers,” Mr Formichella said.

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