Launching your first small business is an exciting milestone, and with that excitement comes a flurry of important steps to bring your vision to life. From securing funding and applying for licences to finding the perfect space to operate, there’s plenty of paperwork ahead as you set things in motion. Among the most important of these is your business loan application, which can shape the financial foundation of your venture. Understanding what lenders look for will help you streamline the process, save time, and set your business up for success.
Luckily, we can help. Stick with us as we unpack the business loan criteria you can expect to encounter as you embark on your journey, and how you can show your finances are up to scratch for a quick and seamless approval.
1. A clear picture of what you do and why.
The first entry on any lender’s list of business loan criteria is, funnily enough, the story of your business. When you apply for finance, the lender’s goal is to understand who you are and what you’re planning to do with the funds. The more specific you can be, the better.
For example, are you using the money to purchase equipment and service a wider customer base? Do you need to stabilise cash flow to push through a busy season? Each goal comes with a different level of risk and expectation.
In this case, a simple, clear business plan will go a long way. It doesn’t necessarily need to be a corporate novel (in fact, that could hurt your application), but hitting the important points in your outline is vital. You’ll want to cover things like:
- What your business does.
- Who your customers are.
- How you generate income.
- How the loan will help you grow.
If we can see that your business is organised and purposeful, then that builds confidence that you’re not just asking for money, but presenting a plan that will allow you to pay it back.
2. Bring financial records that make sense.
Now, this is the piece of any business loan criteria list that can feel a little… daunting. The numbers.
One of the most important factors any lender will consider is your financial track record. Lenders will want to see that your business is financially stable and capable of repaying the loan without placing undue strain on your day-to-day operations.
To demonstrate this, you can expect to share:
- Recent bank statements
- Business financial statements (like profit/loss statements)
- Any tax returns
- Cash flow forecasts you have access to
Now, you might just be starting out. In that case, you won’t necessarily have all of this financial history, but don’t panic. What we fundamentally want as lenders is transparency. If we can see that you’ve thought about your costs, have realistic revenue expectations, and can clearly explain how you’ll make repayments.
Even if your numbers aren’t perfect, the plan you make counts. We would much rather see a realistic picture than an overly optimistic one.
3. Show off your credit history.
Your financial reputation will give you some serious leverage when applying for a business loan, and the best way to show off a great reputation is by bringing proof of your credit history. This is how lenders like us gauge your reliability, and it’s based on how you’ve handled debt in the past.
Basically, if you’ve borrowed before (either personally or through another business), then lenders will check your repayment record, if there are any defaults, and how that’s impacted your overall credit score. A strong credit profile will signal that you’re a safe bet.
If your credit score isn’t perfect, you’re far from alone. You’re also not out of luck. Many small business lenders understand that new businesses and entrepreneurs have bumps here and there, so it helps to show how you’re managing your finances now. Emphasise that you consistently pay your bills on time and keep your debts manageable.
4. Be prepared with security.
Depending on the size and type of loan that you’re after, one of the business loan criteria you come up against could be collateral or security. This is essentially an asset they can claim if the loan isn’t repaid. This could be property, vehicles, or even business equipment.
Don’t worry, this isn’t as intimidating as it sounds. It’s just a way for lenders to reduce risk, and it usually helps you access better interest rates or larger loan amounts.
That said, not everyone wants to work this way. If you’d prefer not to secure your loan against a physical asset that you own, many lenders also offer unsecured options. These options may come with higher rates, but they can be a good fit for smaller loan amounts or businesses without substantial collateral.
So, there you have it: a set of business loan criteria that – if you measure up – can set you up for some serious leverage as part of those applications. If you start with meeting these needs, then the world of small business finance doesn’t need to be as overwhelming as it might at first appear.
So, take your time, gather your documents, and walk into your next loan application knowing that your potential lenders are much more likely to see you as a partner, not just a risk.
Looking for a financial specialist to help grow your business? GVK Finance can help.
You’re in the business of getting stuff done, and we’re in the business of getting you the money to make it happen! Now that you have your business loan criteria sorted, reach out to apply for your loan today.