Need some general tips on improving your small business’s health –especially when it comes to getting finance? This week, we have the pleasure of welcoming Bessie Hassan, who shares our drive to educate the market and help small businesses. As the Money Expert for finder.com.au – the site that compares virtually everything – Bessie is an experienced commentator who often appears on national radio, TV, and throughout online publications sharing her best money-saving tips and property advice. Bessie is passionate about empowering Australians to make better decisions, whatever it is they’re looking for.
Whether you’re an entrepreneur looking to start a new business from scratch or a seasoned owner wanting to expand your business offshore, you’re going to need some capital at some point. To get your hands on this extra dosh, it’s likely you’ll need to take out a business loan. In business, time is money and money is time, so it’s worth knowing a thing or two about how to apply for finance the right way.
Here are four ways to improve your chance of getting the “green light” for your business loan.
1. Check your credit health
Although we’re told to keep our business and personal lives separate, this rarely happens for business owners, as lenders often look at both your company and personal credit scores before lending you money. There’s no point applying for a business loan if you know you don’t have a great credit history (either personally or via your business). Being patient and working to improve your credit score before applying will give you a better chance of securing finance.
Your company’s credit score will be impacted by how long you’ve been in operation, your credit enquiries, Personal Property Security Register (PPSR) registrations and director information. You can improve your score by paying your bills on time, keeping balances low on credit cards and communicating with your creditors. Your personal applications for credit and accounts held in your name may also be checked to help the lender determine your risk profile. Being happy with your credit score and taking steps to improve it will put you in a strong position to begin your finance search.
2. Have a solid business plan
Lenders are most concerned about your ability to repay the loan over time. They’re not going to fork out and invest in your business if they doubt you’ll be profitable and successful in the future, so they’ll want to see proof-points that your business can stand the test of time.
A thorough business plan will make it easier for you to communicate your business vision, strategies and goals to lenders. Including information about how the money will be used and some cash flow projections will show you’re serious about your business and confident in your ability to repay the loan.
3. Know what type of loan you need
There are many different financing options available for businesses. To be eligible for most, you’ll need to have an Australian Business Number (ABN) and for some you’ll need to have been operating for a certain period of time (eg one year for most unsecured loans). You also might need to generate a minimum amount of annual turnover, which can range between $50,000 and $200,000 depending on the type of loan you’re going for. To decide which option to take, you’ll need to understand why you need the capital in the first place.
For example, if you need some additional funds to meet daily business expenses, you might want to take out a business credit card. Remember you’ll need to compare providers to score the lowest interest rate you can. If your expenses can fluctuate (maybe on days when you purchase stock) then consider a business overdraft account, which allows you to overdraw on your business account to a certain limit.
There’s no point approaching a lender for equipment finance if you’re just going to spend the money on inventory – it’s important to do your research so you apply for a product that will complement your needs.
4. Don’t leave it until the eleventh hour
All businesses need money to operate so if you’re short on cash, your business’s lifespan may also be short. If you know you’re going to need extra cash in the near future, start researching your loan options now! Approval for a loan can take anywhere between a few days and a few months, depending on the type of finance you’re applying for. It’s important to have some time up your sleeve so you’re not rushing the application and can wait out the approval process (without going bankrupt in the meantime).
When embarking on your search for finance, it’s important to practise due diligence to ensure you take out a loan that will suit your business needs. Understanding your credit history, having a solid business plan in place, researching your finance options and being prepared are simple ways to improve your chance of being approved so you can make your business vision a reality.
The obvious need for working capital business loans in Australia is evidenced by recent demand from the newly launched only Australian business peer to peer lender, Marketlend.
Within a month, Marketlend has 7.1 Million loans listed on the marketplace from borrowers with strong credit and significant asset positions, and another 1.2Million in the pipeline. It is obvious that the need for working capital business loans is not filled by the major banks, or corporate credit providers.
The borrowers are strong corporates who seek to improve their bargaining power with suppliers or consolidate debts that are charged at rates in excess of 20%. Without the security of property collateral, competing products to Marketlend are corporate cards or expensive factoring solutions that are limited by high interest rates or limit to the lending amount.
Investors – Self Managed Super funds and others
With a burgeoning Australian self managed superannuation market looking for yield, it is a no brainer for these investors. Marketlend provide a stringent credit and rating process, and offer investors net returns between 10-14% dependent on the risk. A personal property security interest is created over the supplies and the business, complimented by director’s guarantees. This is fully transparent and accessible to the investor.
For the borrower the ease of an application process that takes less than 10 minutes to complete, with approval and listing within 1 hour, there are few competitors in this space.
“These are borrowers have bank facilities, and strong credit performance but seek for an alternative for their working capital that offers transparency, speed, reduced finance and administration costs. We return to the borrower the ability to bargain with its suppliers by paying them overnight, and to the investor, a strong yield that is stable and easy to collect” Leo Tyndall, Founder of Marketlend.