Considering getting a business loan for your business? When growing your existing business, there are lots of finance options available to help you reach your goals. A business loan is a type of finance where a lender provides you with funds for business purposes. Some common things businesses use loans for are; paying wages, hiring costs, expansion, paying invoices, cash flow and purchasing stock or equipment. When getting a business loan, there are certain things you should know and things you should do to prepare.
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Build Your Business Credit:
Before you apply for a loan you should know what is on your credit file and what your credit score is. This will help lenders to assess your credit worthiness. Your credit file is a historical record of your previous and current loans and credit. Building good business credit will increase your chances of getting approved for finance. Some ways to create positive credit are; opening up specific business accounts, not having multiple loans or credit, paying off loans quickly and on time.
Avoid Making Financial Mistakes:
When building business credit, it’s important to avoid doing things that will decrease your creditworthiness like; making late payments or combining business and personal accounts. If you have gotten to the point where your credit file is in bad condition then it’s important to not take out further finance unless you are positive you need it. Instead, focus on increasing your credit score by paying off current loans and making sure payments are made on time.
Choose The Right Finance Option:
A lot of business owners think there is only one type of finance option available to them but these days there are more than bank loans available to you. Researching and choosing the right finance option for your business is essential for getting the right loan. Determine what you want to use the funds for and choose a finance facility that suits your business needs.
Things to consider when researching finance options:
- Interest Rates
- Any Costs Involved (Application Fees, Early repayment fees, Late Payment fees, Service Fees)
- Features of the Loan (Redraw Facility, flexible repayments, extra repayments, speed of releasing the funds)
Related Article: The Benefits Of Secured Business Loans For Small Businesses
Make Sure You Are Eligible For The Loan:
Once you have found the right finance option for your business, make sure to check the lender’s minimum eligibility criteria and make sure you qualify for the loan. Applying for loans that you aren’t eligible for will waste your time and the lenders time and possibly cause unnecessary damage to your credit file.
Some factors lenders will look at when assessing your eligibility for a loan:
- Business’s Turnover
- Time in Business
- Personal and Business Credit History
- Tax Debts
Organise your documents:
You will need to supply documentation for the loan. The information that is required will vary depending on the lender and the loan you are applying for. A lot of lenders these days are keeping the application process simple with minimal documents required depending on the type of loan. It’s always a good idea to keep documents that may be requested on hand, just in case you are needed to provide them.
Some common documents the lender may request:
- Your business’s ABN
- Bank statements
- Drivers licence
- A business plan
- Full financials
Business Loans give business owners access to funds for their business. Understanding these tips about business loans will help you to go down the right path when applying for finance.