When researching what is required for a business loan, one thing to bear in mind is that there is no universal, standard procedure. Every bank and non-bank lender may have unique criteria and different business loan requirements.

It is important that you speak to the financial institution you are considering taking out a loan with or through to familiarise yourself with their individual process and needs.

To that end, the team here at ScotPac—the largest non-bank lender in Australia —are always here to help and ensure you receive the right tailored financial solution to suit your business.

Why businesses apply for loans?

Businesses can and do apply for loans for a variety of reasons. Whether this is to help ease up cash flow, invest in new equipment, stock, machinery, or property, or even debt consolidation, the right business loan can help a business truly thrive and grow.

Of course, any business and lendee needs to closely consider the terms and conditions to make sure that the loan is right for them and will put them in a stronger financial position in the long term.

How are businesses assessed?

Lenders and financial institutions do not just provide loans to anyone and everyone, especially business loans.

Whether you’re applying for a secured loan (i.e., with collateral acting as security) or an unsecured loan you’ll likely need to provide some documentation related to financial or trading history. Part of this documentation will include your operating expenses and revenue.

Just about all financial institutions require you to have either an Australian Business Number (ABN) and/or an Australian Company Number (ACN) as well.

Do they run personal credit checks?

Despite the fact that you will be applying for a business loan, many banks will also conduct a personal credit history check. This helps them to establish an analysis of your risk level and determine whether or not you are likely to default on your debts.

From savings in the form of bank statements to general evidence of financial management, lenders of capital may request a variety of different documentation as part of their background check.

How is my ability to repay a loan determined?

At the end of the day, when you take out a business loan, the lender wants to know that you will be able to repay the loan—in full and on time. To that end, it’s not just your character that banks and non-bank institutions are interested in.

Here is a (not necessarily comprehensive) list of some of the different considerations and factors:

  • Income
  • Business profits
  • Debts (business and personal)
  • Expenses (business and personal)
  • Stability of earnings or profit
  • Assets and liabilities

It is important to bear in mind that not all assets are equal. A potential lender will consider how liquid the different asset categories are. In other words, how easy it is for the assets to be sold and converted into capital to repay a loan should such an action be necessary.

Do you need collateral for a business loan?

Secured loans mean that the capital you are borrowing is being done against collateral. In other words, the asset—like a vehicle or home—acts as security. In the event that you cannot repay the loan, the collateral can then be claimed by the lender.

Due to the fact that secured loans are much less risky for banks and other financial institutions, even those businesses who are unable to be approved for an unsecured loan may find themselves able to access a secure loan.

In general, the current as well as the future market value of the collateral in question is considered, and the amount of money you can borrow is affected as a result.

Business Loan Process

During the initial stages of applying for a business loan, you will need to provide a variety of documentation to support the application. To expedite the process, especially with banks where there is a lot of red tape and regulatory processes, it’s good practice to collate all of the necessary documentation ahead of time.

Make sure you have:

  • ID – Personal identification, such as a passport or driver’s license, is required by all lenders.
  • Business information – This essential documentation proves that you own the business for which you are applying for a loan.
  • Financial records – The specifics of what sort of financial documentation is required varies from institution to institution.

New businesses may need to provide additional information if they do not have sufficient financial history to be eligible for a loan. You may be asked to provide documentation around your projected cash flow in the future or even a business plan.

Some lenders want to know more specific information about what you intend on using the funds for, so having a clear idea around the purpose behind the loan application and how much you intend on borrowing (and why that amount) is vital.

While not part of the eligibility process necessarily, it’s important to have some idea what sort of terms and conditions you’re after. What is your repayment plan preference, for example.

If you do not know the answer to these questions at this early stage of the business loan process, don’t worry. The team at ScotPac is here to help.

ScotPac – your local business loan lender

ScotPac has offices across Australia, so you’re bound to have a local office near you. We’re a non-bank lender of working capital to businesses of all sizes and across all industries. Our experts have extensive experience providing advice and financial solutions to help businesses grow and thrive.

In fact, as advocates of small business and through our SME Growth Index research, we’re best positioned to help small to medium sized businesses to grow, scale and take their operations to the next level.

But we don’t expect you to take our word for it. Our social proof—in the form of case studies and testimonials from our real clients available through our website—reinforces our ability to partner with clients to achieve unparalleled success.

If you’re looking for quicker, simpler and less stressful business loan applications, or you just want to know more about business loan requirements Australia wide, make sure to contact our team or check out our offerings today.