Funding is crucial for every business. After all, it takes money to make money. Therefore, getting a business loan ensures that a company gets to expand its reach without draining its capital. Finding and getting the correct type of funding will also allow a small business to grow. However, if you’re applying for a loan for the first time, what are the things you need to prepare?
1. A Clear Yet Concise Business Plan
A business plan doesn’t have to be complex. Instead, it should be straightforward yet concise. Most financial institutions require a business plan to identify if they can approve a loan request or not.
It is essential to describe your business, the funding you need, and what you would do with the funds in the business plan. If you don’t have a business plan ready on hand, it is an excellent opportunity to analyse and identify the things you need for your business to achieve its goals. In effect, the business plan can reflect where your business is and where you would like it to go.
2. A Good Credit Score
A good credit score or credit standing is one of the factors considered by financial institutions before approving a loan. In Australia, a good business credit score ranges between 622 to 725. Meanwhile, 726 to 832 counts as an excellent business credit score.
In September 2016, the average business credit score in the country was 769—an excellent score. There are various ways for business owners to check their credit standing, such as websites or their banks.
3. Business Documentation
Keeping track of the business is always an excellent idea. Business documentation is crucial for proving a business’s financial history and plans to allow a lender to better understand the owner’s financial position. It also dictates the owner’s ability to repay and positioning for future income.
Right before you start the business, try to keep as much information linked to the company as possible. Treat receipts, contracts, and other transactions as important documents in case you need it someday. You are also legally required to keep these documents for a number of years, so make sure your records are organized.
4. A Low Debt-to-Income Ratio
Last on the list is the business owner’s debt-to-income ratio. It is crucial to repay any loan amount that you might have under your name, as it is one of the qualifiers examined before approving a loan.
Having a loan before applying for another loan is not uncommon. However, it is important that what you owe right now shouldn’t be more than 50 per cent of your monthly income. Therefore, any type of loan, even the credit card balance should be zeroed out or at least lessened before lenders track it under your file.
Business loans are not for everyone. There are other options for businesses to secure funding. Every option is available depending on the circumstances of your business—an alternative business loan, an overdraft facility, or a business credit card may also work for you.
Various financial institutions have their own requirements and ways to identify which applicants are eligible for a business loan. However, there are some general criteria that apply. Along with it are specific requirements that also vary per lender. Before applying, make sure you understand all the requirements the financial institution asks for before submitting your application.
Wealthy You is Sydney’s business and commercial finance broker. We understand that starting up a business requires a credit solution that precisely meets the needs of your business. We offer our clients transparent, affordable small business lending that is an alternative to a business loan. Apply now on our website and get approved today!