If you know how to finance your start-up with a business loan, it is only the first step. After that, private lenders in Australia must approve your loan application. Some business owners have issues getting a business loan. The process is not tricky, but inexperience can cause problems. To take a loan successfully, one should consider several factors before applying for a loan. Are you wondering what these significant factors are? We have discussed how to make the approval process smooth in the article below. Keep on reading.
Factors to consider getting your loan approved
Keep in mind the following factors to get your business loan approved.
1. Make A Business Plan
If you meet a lender without a clear business plan, they will shut the doors in your face. We are sorry to say so, but it is true. The business plan must include financial projections about your company. Also, how you are going to use the borrowed funds. Other must-haves of a business plan are your income statement and the assets you own. You can also hand over tax returns along with the business plan.
Mere preparation of a business plan is not enough. How you present will also determine the approval or rejection of your bridging loan. Explain to the lender why you are an eligible borrower and that you will use the borrowed funds wisely to bring more profits to your business. Prove them that the loan will help in the growth of your company.
2. Credit Score
If you are a first-time applicant for a loan, no need to worry about your credit score. Also, all those who repay the instalments and pay the utility bills on time have a good credit score. Different private lenders in Australia have varying definitions of a good credit score. If you default your credit card repayments or previous loan instalments, then all this is reported in your credit sheet.
You will have to work on improving your credit score before applying for a mortgage. Going to lenders with a bad credit score is a waste of time for both parties. Lenders will reject your application. Although you can find loans for bad credit scores in the financial market, these come with other demerits like a high-interest rate and unfavorable loan terms. Before you get the loan, you will have the rating report. Lenders study that to assess your capability as a borrower. They will point you in another direction if they cannot give you a loan.
3. Choose The Loan Type
There are two broad categories of business loans in the financial market, namely, secured and unsecured. Secured loans get secured by assets like property, cars, or machinery. These assets are used as security against the loan and are known as collateral. The lender has the right to sell these assets and recover the money if you default. Unsecured loans do not come with any security. So if your business does not own any assets or you do not want to lose them, you can opt for this type of loan.
Secured bridging loans offer a low-interest rate and favourable terms because the loan is secured. The lender is at high risk in case of an unsecured loan. So, to compensate for the risk, they charge high interest. Also, do not expect to get flexible terms of the loan. The lender may also charge additional fees.
If you do not have any assets to use as collateral and your business urgently needs money, the only option is to go to a private lender in Australia, offering an unsecured loan. If your company owns some assets, you must decide wisely whether to opt for an unsecured or secured loan. Both types have advantages and disadvantages. Read all those carefully and do not make any mistakes. You cannot change your decision once you have applied for the loan.
4. Seek Answers To All Your Questions
Lenders have all the right to be suspicious and skeptical. For example, they can point out flaws in your business plan. You can explain everything in detail to avoid this situation. Be prepared for all the questions and concerns that the lender might raise.
Likewise, borrowers also have the right to question while applying for business loans. Before visiting any lender, prepare a list of questions you want to ask. There must be 100% transparency in loan terms. Be sure to ask the lender about all the additional charges, so your budget does not get disturbed later on. Be clear with the rate of interest, repayment period, instalments, additional charges and other terms of loans from the very beginning.
This way, you can remain determined and informed enough to secure funding. Do not lose hope over some affirmation that a lender has made. You can get convinced by what lending managers are saying without difficulty.
5. Invest in Your Business
Investing in your business means taking a risk. It is proof to the lender that you are not playing around and will work hard to succeed. A lender can identify risk-takers and what they are looking for in bridging loan borrowers. It will make your loan application a little more likable.
Final Takeaway
Several business owners apply for a loan but not all succeed in getting one. Loan applications get rejected due to the negligence of the applicants. If you focus on all the areas mentioned above, you can secure a loan for the growth of your business hassle-free.