How to Get Approved for A Business Loan

You’re a small business owner seeking loan approval. What do lenders look for, and what does it take to make a good impression?
Published: 15 April 2019

Should you try to knock the socks off a lender with an impressive business plan or are they more interested in the strength of your finances?

The answer will depend on which lender you’re approaching, the type of funding you’re applying for and the shape of your finances. Every lender has different criteria for assessing a loan application, which means some will be most interested in the health of your cash flow, whereas others will be more concerned about the value of your assets.

Despite these differences, what every lender has in common is wanting to know that your business has the capability to repay the loan. Here are some tips to help you convince a lender that you are indeed an acceptable risk.

Understand the requirements of the lender

Do your research before applying for a loan to find out the requirements and process of the lender. Understanding what lenders look for and what they consider risky will help you work out the best way to present your business.

If you’re applying with a bank, for example, a solid business plan might be needed. Preparing one of these will take time and effort, so you may have to start well before submitting your loan application. The Federal Government’s business page publishes a business plan template and guide you may find useful. Also, check with your lender whether there is specific information to be included in the plan.

Have your documents ready

Present yourself as organised and efficient from the get-go by submitting your loan application with all the required documentation. Incomplete or missing documents at the start of an application will slow the process down and leave an unfavourable impression.

Ensure your financials are up to date

Get your business financial information up-to-date and ready to show your lender at short notice. Lenders will ask for a lot of in-depth information about the financial history of your business. The figures that banks often ask for include a statement of cash flow, tax returns and financial statements that show your asset, liability and net worth positions.

With alternative lenders, the financial documentation requirements are usually less demanding. You’re more likely to be asked to supply financials around your business revenue and length of time in business.  All lenders ask for identification, recent bank statements and business banking deposit information.

If the financial side of your business is not your forte, consider consulting a financial advisor or accountant. You may also want to find a lender who is willing to support you through the process; for example, OnDeck customers are allocated a dedicated loan specialist to guide them through the application.

Protect against risk

The more you can do to show the lender you are risk averse, the more comfortable they will feel doing business with you. Credit reporting is a powerful way to demonstrate you are taking action to manage your exposure to the risk of bad debt. With a SwiftCheck credit report, you can find out the creditworthiness of a prospective customer or supplier, and if they are registered and solvent.

Not only does credit reporting give you valuable insights into your customers, but also helps with managing cash flow. The higher your cash flow, the better chance you have of getting a loan.

Lenders want to know you are bringing in enough money to cover the cost of your current financial obligations as well as the cost of a new loan. Online lenders, in particular, will assess your business’s capacity to borrow based on actual cash flow. “At OnDeck we don’t require you to create a business plan to apply for a loan; instead, we base our decisions on the actual performance of your business,” says Michael Burke, Head of Sales at OnDeck.

 Know your timeframe

If you need a loan urgently, an online lender may be a more suitable option for you than a traditional lender. While you may have to wait up to six weeks to get a response from a bank, online lenders can reduce this timeframe to between 24 and 48 hours. Michael Burke explains: “We conduct all our lending assessments either online or over the phone. You could submit an online application to OnDeck at 9 am on a Monday and be approved and given access to your loan by 5 pm that same day.”

Determine if you are more comfortable with a secured or unsecured loan

For secured loans, you must put forward an asset of value as a ‘security’. To assess your capacity for a loan, traditional lenders will often look to your business’s assets like property, land and equipment, and sometimes even your personal assets. The lender can sell these assets should you stop repaying the loan.

For unsecured loans, you don’t need to put forward any assets as security. Instead, the lender may ask for a personal guarantee, which is an agreement that the lender has the right to pursue your (the guarantor’s) personal assets if your business fails to meet its loan repayment obligations.

Work out how often you want to make repayments

Think about the type of repayment plan that suits your cash flow. Perhaps you can save on interest by paying small amounts more frequently, or your cash flow is better suited to a more substantial monthly repayment. Not all lenders offer the flexibility to choose how you repay your loan so be sure to check this in advance.