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
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A bad credit score will prevent this from ever happening, even if there is a means to obtain a company loan without any money.
Examining a borrower’s credit score or rating is one method for figuring out whether or not they are creditworthy.
Poor credit, which indicates that you have already defaulted on obligations (such as credit card bills and personal loans), may prevent your loan from being accepted.
You can check your credit score in a variety of methods online, so do so before thinking about applying for a loan.
You typically have a lower probability of being approved for a loan if your score is below 700. If so, you should start making repairs before requesting a loan.
2. No Business Plan in Place
Write down every thought you have regarding finances.
Your small business loan application will fail at the first hurdle unless you have a written strategy in place for how to expand and develop the business, with a predicted budget and have taken into account all the strengths, weaknesses, opportunities, and threats (known as a SWOT analysis).
An explanation of the type of financing you require and how you plan to use it should be included in a normal business plan, according to a mortgage broker located in Melbourne.
The lender will have more faith in your application if you can provide additional details about why you need $50,000, such as how $20k will be utilized for improvements, $10k for advertising, and $20k for inventory in preparation for the upcoming season.
3. Limited Cash Flow and No Evidence of Collateral
How much cash you have on hand to repay a loan is one of the first things a lender will examine.
For this reason, you must sit down and perform a cash flow analysis before submitting your application.
In fact, when deciding whether you can afford to take out a small company loan, this should be the first factor you take into account.
There is a straightforward formula you can perform to determine how much loan repayment you can afford to make, but your financial advisor may provide you with more details on your existing ability.
Here is a breakdown of how to calculate a loan repayment schedule.
To get your debt service coverage ratio, divide your net operating income by your total yearly debt.
You will have a 1.0 ratio if your cash flow is equal to your monthly loan payment. Lenders like a somewhat larger ratio because it demonstrates that you have a little more cushion in your budget.
You need to review your finances if anything is less than 1.0 because it will damage your application for a company loan.
A number of lenders will require collateral proof, which may include both commercial assets and personal assets that are not related to the firm.
You should anticipate that the equipment and other assets you purchase with the loan will be used as collateral to protect the borrowed monies.
Your small company loan application may be rejected if you haven’t made clear to them that you have any kind of collateral.
4. Not Seeking Expert Advice
This relates to the planning side of the firm, and lenders want to see that the applicant has consulted with skilled financial consultants recently and regarding pertinent issues.
There are several business mentors and advisers who are qualified to assist those in the same industry.
These business consultants will assist you in recognizing some of the dangers and pitfalls as well as assisting you in determining the kind of cash that will be more crucial to your company.
Other excellent sources of guidance include local Chambers of Commerce and business networking clubs.
Visit the websites of a reputable mortgage broker if you still have questions about the many business loan options available.
Melbourne companies have profited from various lending options, including term loans, overdrafts, and invoice finance.
You can make sure you are applying for the proper type of loan to suit you and your business by knowing what is available in the market.
5. Lack of Organization
To the greatest extent possible, business loan applicants must present themselves and their loan application in the best possible light.
No lender will take it away from you if important documents are absent or the application is incomplete. This is an indicator of how you may run your organization.
Get everything in order because your goal is to inspire confidence in a lender.
Make sure you have your income tax records, personal and business banking statements, a business strategy, and any loan histories. Also, prepare all the paperwork in advance.
Along with any statutory papers necessary to operate the firm, professional insurance indemnity, business licenses, and franchise agreements should be in order and current.
Ask the lender if they have a checklist for small company loan applications that you may use, and when you’ve finished the application, ask a friend or partner to review it.
Make sure there aren’t any careless errors because they’ll drag down the procedure and make the lenders wonder about your organizational skills.
Are you someone people want to entrust with their money if you can’t get the form properly filled out.
6. Too Many Applications
Trying to spread your chances by submitting multiple loan applications, however tempting it may be, does cause lenders some concern.
We want to shop around as consumers and get the greatest value for our money, but when applying for business loans, submitting too many applications will work against you.
It is far preferable to do your study, make your plans and preparations, and decide who you will apply to for a loan after making an informed selection.
Also keep in mind that any lending specialist would be more than pleased to respond to inquiries about the services they provide.
Additionally, they should be able to calculate the yearly percentage rate of their loan offer and go over the variety of possibilities they have.
If they provide a brokerage service, a respectable company will also be able to offer additional guidance on making sure you submit all the necessary data and supporting documentation to ensure your application is successful.
