Business Loan 101: The Best Advice for Borrowing

Australian business owners already up and running can use their current profit margin to apply for a business loan. Once a company shows even a small amount of profit, a loan can be used to build up your working capital, hire new employees, or even go from online to a brick-and-mortar location. 

Before you apply for a business loan, you need to get several things in order and make sure you know what red flags to look out for on your contract. Don’t go into your first meeting unprepared; take a moment to make sure you have everything you need before you apply. 

Scroll down for a step-by-step guide to your first business loan. 

What do I need to get a business loan?

To start, you need an established business or a solid business plan to present to your bank or broker. No matter the stage of your business development, your business loan needs to be clearly marked for where it will go and how. 

Here are the most common uses for a business loan:

• Manage cash flow – your working capital can get delayed by late payments that don’t come in right away or get tied up in inventory. If you need money available for daily expenses, a business loan can help you when money is tight.
• Expand – The right business loan means you can take on a new contract, open a new location, or get better storage so you can fill more orders.
• Stock up on inventory – If you offer something your customers constantly snap up, you can use your business loan to keep more of it on hand. Your sales record can help show your broker how a business loan will ensure higher sales and help you pay it back.
• Better marketing – Do some small advertising tests first to gather data on what works and how you plan to market your business. Then, use your business loan to launch a marketing campaign that helps you earn more in the next quarter.
• Hire more staff – As demand increases, you need a bigger team to keep up with your customers. Use your business loan to increase the size of your team and maintain a good rapport with customers.
• Pay off debt – It might feel strange to pay off one loan with another, but those quick payments keep your credit score up and help you maintain a good relationship with your bank. 

Once you have the goal for your money, calculate the exact amount you need to make it happen, (don’t estimate). That exact number will help your bank or broker feel better about giving you a business loan. 

Then you need to gather some documents. Here’s a quick checklist of what you need before you apply for a business loan. 

• Your amount needed and your plan for the money. Add any necessary research to clarify how your business loan will be used
• Your personal credit report
• Available assets such as property or business assets you can use as collateral
• A driver’s license, passport, or both for identification
• Your balance sheet, income statement, and cash flow statement to show your assets, liabilities, and net worth
• Your two most recent tax returns as proof of income
• Bank statements showing your business checking account, savings, and any business credit cards
• A complete business plan to show your business’s projected growth 

How much to borrow

Anyone in need of a business loan needs to look at several elements. On top of your original calculation for how much you need to borrow and your plan for the money, you also have to consider your company’s history, your own debt, and your credit score. 

Companies come and go, so any lender wants to see that your company will be a solid investment and not another flash-in-the-pan venture. If your business is new, look at your industry’s numbers. Factor in how long the average company stays open and why yours will match or beat that number. 

A lender also wants to see any debt already incurred for you personally and your business. Most companies work at a loss for the first few years, but that loss can be astronomical or manageable. Make sure you have a plan for paying off any debt on your books before your broker sees it. 

Anyone applying for a business loan needs to run a credit check on themselves. Your credit score needs to be 661 or higher, with 853 being the ideal number. This figure reflects your overall relationship with money and debt and lets a lender know if you’re a safe bet for a business loan. 

If your credit score is high, you have an established business and a solid plan for how to expand, what new equipment to buy, or want to improve your cash flow, you can get a business loan for up to five million AUD. If you’re new to the scene or don’t have a great credit score, you may only qualify for a business loan of five thousand AUD. However, you may benefit from taking the smaller loan and paying it back quickly to improve your credit score. 

What business loan is right for me?

Business loans come in many forms. Take a look at our breakdown of different types of loans available to you as an entrepreneur. 

Type of loan Timeframe Best for

Traditional bank term loan	Between two weeks and two months, (due to an excess of paperwork)	Established, bigger businesses that need a larger, low-interest business loan
Hire purchase	One to two weeks	Companies that need a vehicle or piece of equipment right away
Bank overdraft	One to two days depending on your financial history	Businesses that need more cash flow and a flexible repayment plan
Online, unsecured business loan	24 hours	Companies that don’t have collateral and need to cover smaller expenses

Let us find you the perfect business loan

At LendEasy, we work with you to find the best loan and broker a repayment plan that keeps your business profitable. We want to see you succeed, so we work tirelessly to make that happen. 

Book a discovery call today to learn more about your options and how we can help you keep your company moving forward.