When to get business loans for small business ventures

At some point on the entrepreneurial journey of starting up your own business, you reach a crossroads. At this point, you need to choose between either maintaining, retreating, or expanding. It’s a milestone that requires a conscious leap, from referring to what you’ve been doing so far as a “hobby” “passion project” or “side hustle” to owning the fact that you’ve entered the territory of bona fide small business.

It’s now time to take stock of your current position in the market. Not of actual inventory, which we’ll get to below, but of your vision for the future of this fledgling enterprise. If the time is right to expand you may need cash flow to pay for recruitment, premises, materials, equipment, marketing, and everything else that contributes to sustained business growth. The results of this pulse check will inform an evolved business plan for the next 12 to 36 months, and require a comprehensive update of the accompanying financial plan.

Because the type of funding you require at this point will also shift.

Where alternative resources may have sufficed in the past, growing the business from your living room to taking up space as its own entity, means asking the milestone question: are you ready to apply for business loans for small business?

Time in Business: ✔️

It makes sense that one of the first criteria a potential lender will assess is the actual age of a business. Typically there will be a requirement of at least 12 to 24 months in operation for traditional bricks and mortar banks, while online lenders tend to be a little more flexible. If you’re newly launched do your research and take a closer look at those accommodating small business owners with a minimum of 6 months of trading under their belts.

Transparent Credit History: ✔️

As you begin the process of preparing to submit a small business loan application it’s important to be aware of any supporting information you’ll be asked to provide. It may have occurred to you that credit history and credit score will be included, but it’s worth remembering that most lenders will require a comprehensive set of credit history information including bank data, existing loan, and credit card statements, and access to ATO portals. Top tip: as you start examining this section of your application be mindful of accruing additional loan debts, make a point of consistently making repayments on time, and minimize any additional debts such as credit card balances or overdrafts in advance of applying.

It’s in your best interest to have as a few other active debts as possible, and zero late payment notices on those debts and any recurring monthly bills.

Monthly Business Turnover: ✔️

The minimum monthly turnover required to secure a business loan varies greatly between lenders, which is another criteria that lenders consider in addition to the minimum trading period discussed above. While some online lenders require smaller monthly turnover amounts, others may require an annual turnover of anywhere up to $100,000.

The monthly turnover requirement also depends on the amount a business wants to borrow. For higher loan amounts, lenders usually request detailed paperwork, discussed in more detail below, with current profit and loss statements updated in the past 60 days, and bank statements from the previous 2 years.

Ultimately what they’re looking for is a profitable business or one that comfortably meets minimum revenue targets each year.

As a general rule the stronger your business is performing financially, the more likely you are to qualify for financing with better and affordable rates.

If you’re a brand new business with zero financial records, securing funds can be challenging - but not impossible. In this case, you’ll need to provide a comprehensive business plan.

Comprehensive Current Business Plan: ✔️

When you apply for business loan lenders will want to get a really good grasp of your financial situation and a detailed, updated business plan is the best way to give them an informative overview. To set yourself up for the best possible feedback, make sure it covers everything from current status to business goals and financial projections. These goals should align with any fiscal responsibilities, including addressing your ability to keep up with calculated weekly or monthly repayments of the loan in question.

In terms of writing a good business plan, it’s important to first specify exactly who it’s for and then research how to present the best structures and strategies for your business. Complete the business plan by investing a good amount of thought and time into writing up the summary section, as this is where you’ll clarify what avenues the finance you’re seeking will open up for the business once it’s secured.

Completed Paperwork: ✔️

This is in addition to the business plan discussed above and is another area of the small business loan application checklist that can vary from lender to lender. For example, some online lenders may only require 6 months of past bank statements and a copy of the business owner’s driving license to proceed with the application. For others, a business activity statement (BAS), commercial lease agreements, business licenses, balance sheets, and income statements might also be required. The criteria largely depend on the requested loan amount, business turnover, and other deciding factors that determine your fiscal viability, or potential risk, as a borrower.

Detailed Collateral Breakdown: ✔️

This is particularly relevant if you’re looking at applying for a larger loan, which would typically cause lenders to require collateral such as real estate in the form of residential or commercial property you already own. If this isn’t feasible you may be able to put up other high-value personal assets such as vehicles, equipment, or equity in the business. An alternative strategy, favored by small businesses that require more flexibility and less rigidity when applying for loans, is to research unsecured loan terms with increasingly popular fin techs that are essentially more agile and may offer loans of up to $150k, with zero assets required.

So, how did you score on the small business loan application checklist?

If you ticked every box and you’re ready to apply, the next step is to research lenders and get familiar with loan terms and small print. Essentially gathering all the information you need to make the best possible decision for your business.

If based on this checklist, you’re not quite ready yet; you now have clarity on what you need to do next. Take notes and get yourself in the best possible position to secure the funding your business needs to make it to the next milestone of your small business (ad) venture.