When it comes to gaining finance, it can be a make or break excise for a business operation. Small business owners come to us for a lot of different reasons, it could be to invest in extra inventory for an upcoming busy period, launch a new product, expand into a 2nd premises or consolidate debt into a cash flow friendly loan, the reasons are endless. However, there is one common thread between all the business owners we speak to, obtaining the funding is critical for that business to be able to reach their potential. So, with that in mind we have put together our list of the top 5 areas to be mindful of before applying for a business loan.
How much do you need? Ideally what term are you looking for? It is important to be clear and have a solid understanding of exactly how much money your business requires. Only having a vague understanding of how much your business requires means you have not done your homework. Ensure you have thorough knowledge of your business’s financials and a clear figure in mind for what is required to fulfil the purpose of the loan application. For example, if you own a restaurant and wish to employ extra staff during the peak summer period, work out exactly how many extra staff will be required, how many hours they will be working and what their hourly rate is. This will give you the exact figure you need to borrow.
- Up to Date Company financials.
Ensuring all your documents are up to date and error free is a non negotiable. The lender needs to be able to make an informed assessment on the performance of your business. If you provide outdated financials and management accounts, a lender can not make an accurate assessment on your business’s performance. Having cloud based accounting software, like xero, also helps the assessor with the speed of the assessment. Such programs also allow you to automate financial tasks and easily produce financial reports.
- Tax Debt Under Control.
Did you know that Australians owe more than ever before in unpaid taxes? According to the Australian Taxation Office’s annual report unpaid debt rose to almost $24 billion last financial year, with the majority owed by small business. To put that into perspective over 600,000 SME’s out of the 2.1 million SME’s that operate in Australia either have an outstanding tax debt or have a payment plan in place. It’s ok to have tax debt, however you need to be able to demonstrate your business is managing it, for example by having a payment plan with the ATO.
- Healthy Credit Score.
Applying for a small business loan means you need to have a good credit score – both a business & personal one. Make sure you’re aware of the type of activities that could negatively impact your score. One mistake we come across regularly is people making lots of loan applications in a short period of time. This negatively affects your score, so make sure you do your research before applying for a loan. Read one of our recent articles here for tips to maintain a high credit score, as well as where to go to check your credit score for free.
- Cash Flow Management.
We understand that managing cash flow is challenging! All businesses will most likely experience tough periods. It’s actually one of the major reasons we finance businesses. However ongoing poor cash flow is a sign you may not be able to make regular repayments on your loan. Read about how you can make changes to improve your business cash flow here.
Chat with us
It’s our mission to help Australian small businesses reach their potential. We are happy to assist you with your finance requirements or have a chat about some ways to improve your chances of being approved. Contact us here or by calling our friendly team on 1300 647 996.