When you think of business financing, you may be imagining approaching a financial institution and waiting for months for your business loan application to get sorted.

By that time, you might be itching to purchase equipment or scrambling to get customers to settle their outstanding invoices.

However, there are now also online lenders that normally have a faster application process. This will let you borrow money faster.

But what’s the best way to get a small business loan? Keep reading to learn how you should handle your small business loan application.

The Best Way to Get a Small Business Loan

What’s the best way to get a small business loan to reach your business goals?

It may be easier than you’d think for small businesses to get a business loan.

Create a Business Plan and Calculate How Much You’ll Need

Many lenders tend to require a detailed business plan when processing loan applications. As such, the best way to get a small business loan is to create a solid plan.

While you’re doing so, you should also be considering the loan purpose, which will lead you to calculate how much you might need.

After all, business loans are big commitments, so you shouldn’t take out more than you can afford.

For instance, usually, you would need less money if you’re aiming to maintain a consistent cash flow during seasonal fluctuations compared to if you’re expanding the business.

You can make applying for a business loan easier by creating a clear plan before proceeding.

Compile the Necessary Documents

Different lenders and types of business loans can have varying requirements — however, certain necessary documents typically apply to all of them, like the following.

• Proof of Australian citizenship or permanent residency
• Personal identification like your driver’s licence or passport
• ABN/ACN and GST registration
• Personal and business tax returns
• Profit and loss statements
• Financial statements
• Detailed business plan

It’s a good idea to contact the lender before you apply for a business loan to ensure you have the right documents.

Decide if You Need a Short Or Long Term Loan

With so many loan options, you should first consider whether you want it to be a long- or short-term loan.

Short-term loans should generally be repaid within a few months to a year. Meanwhile, a long-term loan can be repaid over the course of several years — some even as long as 15 years.

Short-term loans are usually better for immediate needs, like restocking inventory. However, they tend to have higher monthly payments since you have less time to repay them.

An example of this can be working capital, which lets you cover daily expenses, such as rent and payroll.

Meanwhile, a long-term option can come with higher amounts and more manageable monthly repayments since you have a longer period of time to repay the full amount.

One example is a line of credit, which lets you pull funds anytime you need it rather than being a lump sum received at the beginning of your loan term.

Then you have SBA loans, which are also long-term loans that can last up to 10 years for working capital and fixed assets like residential property.

Look For Practical Repayment Terms

When considering repayment terms, you should be realistic about how much you can pay each month. Remember that there are external factors that can affect your ability to pay, such as supply chain interruptions and seasonal fluctuations.

Long-term loans may have lower monthly repayments but can result in increased payments over time due to the interest.

Lenders can base your monthly payment on factors like the following.

• Type of loan
• Credit history
• Business profitability
• Business type and how long you’ve been operating
• Owner’s income

However, online lenders may be more flexible in their eligibility requirements. For instance, their annual revenue requirements are typically lower.

Most lenders online may also allow you to take an unsecured loan, making them a good option for those who don’t have assets they can use as collateral.

Thanks to that, they also tend to have higher loan approval rates.

However, credit history is still important since it directly affects your borrowing capacity, interest rates and loan terms.

Lenders typically check both your personal and business credit score. They show how responsible you are with regards to paying debts.

A good credit score can make you eligible for a lower interest rate. Meanwhile, a bad credit score can give you higher monthly repayments. Or, you might not even qualify for a small business loan at all.

Settle on a Loan Type

With the above information in mind, narrow down the types of business loans you can choose from.

You can speak with a financial adviser for advice on different financial institutions and their loan offerings. You’ll get personalised advice on which financing options can work for your business and financial situation.

They may even be able to help you create a plan to repay the debt.

For instance, a business credit card might be easier to qualify for if you have a good personal credit score. Or, they may suggest invoice finance if you rely on invoices getting paid.

Consider Your Lending Options Carefully

The best way to get a small business loan is to spend time giving some thought to each of your options. This way, your loan request may be approved faster.

Some more things to consider are:

• Annual percentage rate
• Fees
• Funding speed

FAQs

If you have more questions regarding the best way to get a small business loan, we’ve answered some below.

Can You Get a Small Business Loan From the Government?

Yes, the best way to get a small business loan for some owners may be through the government.

Aside from traditional bank loans, there are government forms of lending in Australia that small business owners can check. These include:

• Accelerating Commercialisation
• R&D Tax Incentive
• Export Finance Australia
• Clean Energy Finance Corporation

How Much Can I Borrow for a Small Business Loan?

It depends on the lender. Generally you can borrow $5,000 to $500,000 for most small business loans.

How much you can borrow depends on factors such as the type of loan and your credit history. If you’re a successful business, lenders can give you better terms.

Conclusion

The best way to get a small business loan is to find a lender with flexible and comfortable loan terms.

For instance, do you prefer a fixed or variable rate when you pay interest? Are you confident you’ll pass if the lender runs a credit check? Are you willing to set up business or personal assets as collateral?

Research all your options for business loans and narrow them down until you arrive at the one that fits you best.