What Do You Need for A Business Loan in Australia?
Written by Bindi Gethen
Australia is the land of opportunity. But still, securing abusiness loan in Australia, especially for small businesses, which are nearly98% of all Australian businesses, can often feel like trying to catch a kangaroo on a skateboard – it’s possible but requires skill, the right equipment, and a good dose of determination.
Every business needs a loan at some point. Whether you are looking to boost your working capital, invest in new equipment, or expand your operations, a loan can help you get the required funds quickly. However, understanding what you need for a business loan is crucial. It’s the only way to secure the funds you need on time.
Let’s seewhat you need for a business loanin Australia.
1. Establish Your Funding Needs
First things first, let’s talk about the basics.
Your business should be registered and licensed and must operate in Australia. That’s one of the fundamentalbusiness loan requirementsin the land down under.
But that’s not all. You will also need to establish your borrowing needs. The bank you are applying to will ask why you need this loan.
Do you need it to expand your services?
Do you need it as a rolling capital?
Whatever your needs, make sure to establish and document everything. A sound business plan is your lifeline here. It will detail your business goals, strategies, how much you want to borrow, and how you plan to repay the loan. It will also help the lender provide you with a suitable business loan.
For example, a line of credit or business overdraft is often the best way to ensure a steady cash flow. In fact, it is one of the most commonsmall business loans in Australia. In this type of business loan, you can borrow the funds as needed within your credit limit. Usually, the lender will charge interest only on the money you use, not the approved credit limit.
2. Showcase Your Business's Financial Strength
Lenders want to see a healthy business – one that’s not just surviving but thriving. Your financial statementsare the pulse check here. The lender will comb through your financial history to understand if your projections are based on real, hard-core facts.
So, when youapply for a business loan in Australia, keep your balance sheet, income statement, and cash flow statement for the past three years ready. It’s your holy trinity in securing the amount you need to grow your business. Lenders might also request your most recent tax returns, business activity statements (BAS), or screenshots from your Australian Taxation Office (ATO) portal.
Should your business be associated with any trusts or self-managed super funds (SMSFs), you may need to provide additional documentation. Just be sure all your documents are up-to-date, accurate, and reflective of a business that knows its onions.
So, it’s best to hire a certified bookkeeping service to prepare your financial statements. Besides keeping your financial ducks in a row, they will know about the latestbusiness loan requirements. They will be your ally in securing the funds you need quickly and efficiently.
3. Check Your Credit History
Credit history can make or break yourbusiness loan eligibility. Your credit history is the track record of your past expeditions. It tells lenders how well you’ve managed your debts and financial commitments.
A strong credit history is like a well-marked trail. It demonstrates that you’re likely to reach your destination without getting lost. Conversely, a poor credit history can make lenders reluctant to loan you the funds. If you still manage to secure a loan, you will probably pay a higher interest rate.
4. Get Your Security and Guarantees in Place
Sometimes, when youapply for a business loan, having all your documents in order isn’t enough. Lenders might ask for collateral – assets like property or equipment that can be used as security for the loan.
This is the lender’s safety net. It ensures the lender can recover their funds if things go south. Personal guarantees from the business owners might also be on the table. Thistype of business loan in Australiais known as a secured loan. You can get a secured loan at a relatively lower interest rate.
If you can’t put up a guarantee or collateral, you can opt for an unsecured business loan. However, gettingunsecured business loans in Australiacan be tough. The interest rate is often higher than a secured business loan. In Australia,secure business loansstart from around 4-5% p.a., while unsecured loans start from 12% p.a.
5. Know Your Repaying Capacity
Before youapply for a business loan in Australia, know your repaying capacity. It will affect your repayment amount and tenure. For example, ashort-term business loanwould demand more repayment in less time. On the other hand, a long-term loan would mean you pay less money every month. However, you will end up paying more interest due to increased tenure.
Make sure which option best suits your needs. You can do this by looking at your cash flow. Understand your net cash position. Consider all your expenses to gauge the remaining cash that could go towards loan repayments. Also, consider seasonal revenue fluctuations.
You can use the Debt Service Coverage Ratio (DSCR) to evaluate your repayment capacity. Usually, a DSCR ratio above 1.25 is favourable. Don’t forget to include a financial buffer for unexpected downturns. These considerations will help you secure a business loan you can pay back without breaking a sweat. But more importantly, it will help your business thrive.
6. Choose the Right Lender
You should know that not all lenders are created equal. Find a lender that understands your borrowing needs and business goals is critical. The good news is you have plenty of options. In Australia, you can get a business loanfrom a traditional bank or an alternative lender.
Traditional banks offer security and potentially lower interest rates. However, theirrequirements for a business loancan be stringent, and the approval process is lengthy. Alternative lenders might be more flexible and faster with approvals. But they often come with higher interest rates.
It’s all about finding the right wave to ride that aligns with your business needs and goals.
How The Bookkeeping Studio Can Help
Securing abusiness loan in Australiarequires thorough preparation, strong financial health, and the right documentation. So, take a closer look at your borrowing needs, understand what you can repay, and keep all your documents ready. That should help you secure the funds you need as soon as possible.
Fortunately, you don’t have to go through the process alone. The Bookkeeping Studio is your partner in keeping impeccable financial records. We help make your loan application as strong as possible. Our experts know how to keep your books in order, giving lenders every reason to say yes. Whether you choose in-office or online bookkeeping services, we will ensure your numbers always add up.
With The Bookkeeping Studio by your side, you’re not just applying for a loan – you are setting the stage for your business’s future.Contact us todayto ensure your financial records are loan-ready.
Hey, my name’s Bindi Gethen! I’m the founder of The Bookkeeping Studio in Australia. With over 15 years of experience in the industry, I have a deep understanding of the challenges that small and medium-sized business owners face when it comes to managing their finances.
I am passionate about empowering my clients with the financial information they need to succeed. My team and I pride ourselves on our commitment to exceptional value, accuracy, and confidentiality. Our virtual bookkeeping services include payroll, budgets, and management reporting, among others.
Not to toot our own horn, but we can assure you that you won’t find a bookkeeping partner like us anywhere else in the Southern Highlands.
