If you’ve decided it’s time to apply for a business loan, there are a few things you can do to get ready. You should come to the meeting with your lender prepared, and that can require some research and understanding of your own finances.
Prepare questions beforehand
Before you start talking to a lender, you should consider your financial history. Some of the following questions may help you to decide what you are looking for.
- What is your credit history like?
- How much do you want to borrow?
- Over what period of time do you want the loan for?
- Fixed or variation interest rate?
- Are you willing to put your assets on the line?
- Will you need access to cash-flow on a regular basis?
- Have you considered the risk?
- Have you spoken to a financial advisor?
Review your credit history
As a small business owner, it may be worthwhile to investigate your own credit history. This will likely be one of the first things that a lender will check. You can conduct your own check on your credit history through a credit reporting body. Generally, you can request a report for free once per year1.
Consider your choice of interest rate
You will need to consider whether to opt for a fixed, variable or a split loan interest rate. In addition to the potential variability of repayment amounts the decision also involves as assessment of the market. Choosing between fixed, variable or split interest rates can be quite difficult as no one can accurately predict future interest rates2. This is a choice you will need to make based on your own research and understanding. It may also be helpful to seek advice from a qualified professional.
Your choice can have impacts on your cash flow . If you choose a fixed interest rate, you safeguard against the possibility of having to pay more if interest rates go up - but miss the opportunity offered by a variable rate to pay less if interest rates go down. According to Business Victoria3, your profit level should help define your choice: Those with a low profit level risk may be unable to sustain rising variable rates, but conversely miss out when variable rates drop3. In this situation, a fixed rate may provide some comfort in that repayments remain constant during the fixed period of your loan.
Prepare to offer security for the loan
Depending on your financial circumstances, some lenders may require security to assist in mitigating some of the risk involved with providing you with a loan in case you default on your loan repayments. According to CPA Australia, the most common asset used is the home of the small business owner4. Should unforeseen financial circumstances arise, your business may impact your personal assets. If this is not an option, you may be able to offer alternative security that is acceptable to the lender.
Consider developing a business plan
Considering how important profit will be to the success or failure of your business (and thus, whether you will default or not on the loan), your lender will want to know details about your financial position and information about the market in which you operate, such as the industry sector, levels of competition, barriers to entry and a profitability profile5.
Building your own business can be an incredibly exciting venture and you should be proud that you are in a position to even consider getting a loan. But you may need to invest quite a bit of your time and effort in preparation. Consider your financial history, gather documents, seek professional advice and have a plan. If you walk into a meeting with a lender confident and knowledgeable you will come away knowing that you will have put your best foot forward.
Enquire about a competitive IMB Bank business loan
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