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Home Compare Personal Loans 7 steps to getting a business loan
If you’re ready to get down to business, let’s discuss how you can get the party started with a business loan.
By Rachel Horan on 31 May 2022
Fact Checked
If you’re ready to take your business to the next level, congratulations! Before you start turning your dreams into a reality, you’ll need cash to spend on your business.
It might seem scary or stressful to apply for a business loan, but you’re not alone. According to a 2016 report from the Australian Bankers' Association, about half of small businesses have a business loan facility other than a credit card. In 2021, the total value of fixed term loans written to small businesses amounted to more than $36 billion according to ABS figures.
Whether you’re an entrepreneur who dreams of being the next Elon Musk, or your cafe is taking off and you’re ready to expand - a business loan could come in handy. But just like any other type of loan, there are steps you’ll need to take to successfully bag a business loan.
In this article…
Steps to getting a business loan
What you can use a business loan for
How to apply for a business loan
Alternatives to business loans
Should you apply for a business loan?
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Lender


Fixed Unsecured N/A N/A

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FUNDING WITHIN 24 HOURS
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Unsecured Personal Loan (Excellent Credit)

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Fixed Unsecured N/A N/A

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CHECK YOUR RATE IN 2 MINUTES

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CHECK YOUR RATE IN 2 MINUTES

Unsecured Personal Loan (Excellent Credit)

  • No ongoing fees
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Fixed Unsecured N/A

More details

APPLY ONLINE

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APPLY ONLINE

Low Rate Personal Loan Unsecured (Excellent Credit)

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Variable Unsecured N/A N/A

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  • No ongoing fees
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Personal Loan

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Fixed Unsecured N/A

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  • No ongoing fees
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Unsecured Personal Loan Fixed

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Variable Unsecured N/A N/A

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Edge Overdraft

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*Comparison rates based on a loan of $30,000 for a five-year loan term. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The products that appear in the table above are initially sorted based on a variety of factors including the availability of a direct link to the providers website, and other commercial factors (see How we get paid). However, the comparison table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. Data may not be available for some products. This is indicated in the tables by not showing an available product for the relevant term. Terms, conditions, fees and charges may apply. The above is prepared without considering your objectives, financial situation or needs, therefore please consider its appropriateness to your circumstances. General Information and Terms and Conditions may be found on each provider’s website. Rates correct as of November 30, 2022. View disclaimer.


*Comparison rates based on a loan of $30,000 for a five-year loan term. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The products that appear in the table above are initially sorted based on a variety of factors including the availability of a direct link to the providers website, and other commercial factors (see How we get paid). However, the comparison table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. Data may not be available for some products. This is indicated in the tables by not showing an available product for the relevant term. Terms, conditions, fees and charges may apply. The above is prepared without considering your objectives, financial situation or needs, therefore please consider its appropriateness to your circumstances. General Information and Terms and Conditions may be found on each provider’s website. Rates correct as of November 30, 2022. View disclaimer.
Before you can start buying supplies or hiring new employees, you’ll need to secure your funds. Let’s go over the eight steps you should take before applying for a business loan.
Before you figure out how much you need to borrow, figure out your current financial situation, and from there, you can determine how much you are going to need for your business venture.
It’s important to understand things like your current income, net profit, expenses and any future projections before you apply for a business loan. A good way to get this snapshot of information is by preparing a cashflow statement, according to business.gov.au.
You should also understand exactly what you’re taking out the loan for. According to CommBank, some of the most common reasons for taking out business loans include: managing cashflow, funding growth, or buying a vehicle/equipment for the business.
Whatever your reason, you’re going to be asked on your application. So it’s important to figure all of this out before hit ‘apply’.
You may also need to take a look at your own personal finances. Most lenders will check your credit score and ask for business activity statements (BAS), which is an indication of your reliability as a borrower. Make sure you check your credit report to find your credit score, so you know what options you may have.
From here, you should figure out exactly how much you need to apply for. Calculate your costs of your endeavour, which should be pretty easy depending on what you’re planning on doing. In the same breath, only apply for what you can afford. When assessing your application, your lender will do its due diligence to make sure you can afford your monthly repayments, which you can do too. There are plenty of online repayment calculator tools you can use to work out whether the amount you’re applying for is going to be manageable.
Before you start researching your options (step five), it might be helpful to first figure out what kind of loan you’re going to apply for: a secured or unsecured business loan. Secured loans require an asset as security while unsecured loans don’t.
With an asset attached, secured loans often come with lower interest rates, but you’d need an asset to offer up as collateral. But they come with an added layer of risk as if you were unable to make your repayments, the lender could repossess your business asset. As a trade-off, secured loans often come with much lower interest rates.
Another way to narrow down your search criteria is the interest rate you want for your loan. In a nutshell, a fixed interest rate is ‘fixed’, and doesn’t go up or down for a set period of time. Depending on the life of your loan, it may be fixed for the entire time. This can be helpful for certainty and cashflow purposes, as you’ll know exactly how much you’ll be paying each month.
On the other hand, variable rate loans typically fluctuate in line with the market. Meaning if interest rates are going up, it will likely go up. But if interest rates are falling, your lender might cut your interest rate. Variable rate loans can sometimes come with other attractive features, like a redraw facility or unlimited extra repayments to help you pay off your loan faster.
Now that you’ve gotten the basic stuff down pat, it’s time to find yourself the best fit for your business. Do some research into different lenders, their products and so on. If you do all of your banking through one financial institution, it’s convenient to get your business loan through them too. Or maybe you found a competitive online lender with attractive fees and features. Either way, make sure you’ve scouted your options, vetted the lender and fully understand the product offering, including any fees.
When researching your options, it’s important to understand and keep watch for any sneaky fees and charges on the loan. While an interest rate may seem enticingly low, it’s not all that matters. The comparison rate encompasses the interest rate, as well as any other fees and charges you’ll be paying, so it’s important to pay attention to this.
Fees and charges you could be looking at include:
Establishment or application fees
Monthly account keeping fees
Early repayment fees
Exit or break fees
Valuation fees (if you opt for a secured loan)
If you’re not sure what a certain fee or charge is, do a quick Google or ask your lender. It’s important to understand exactly what you’re paying for to make sure you snag the best deal.
If you’ve found a business loan you’re happy with, make sure you compile all of your supporting documentation. This will make things easier when filling out your application. While the documentation needed can vary from lender to lender (but you can usually check what will be required on their website), you can expect to be required to apply the following:
Proof of identification (drivers licence, passport, etc)
Your Australian Business Number (ABN) or Australian Company Number (ACN)
Your business plan
Your business' financial reports for the past three years
Bank statements
Any financial forecasts
Your personal financial information
This way, the lender has all of the information they need to properly assess your application. If you don’t have access to any of the above information, and your lender requires it on their application, reach out to an expert and see what can be done. If it’s an absolute must, you may need to look elsewhere or find a way to create said documents.
There are a number of reasons you might need a business loan. To give you some ideas, you could need funding to cover:
Start-up costs
Capital investments
Property or asset acquisition/development
Refinancing other lending
Business expansion
A new work vehicle
Buying equipment
Or any other reason you need a cash splash for your business. All you’ll need to do is prove that it’s a legitimate business expense and your lender should consider it.
If you’ve completed the first seven steps and you’re all set to get started, you may be wondering… what now? Let’s say you’ve got your business plan and financials, an asset ready to be offered, and you know what your credit score is. From here, it’s time to apply for a business loan.
You’ll need to head to the lender’s website and follow their application process. If you’re applying with a bank, you may be able to fill out your application over the phone or in person. You’ll need to have all of your supporting documents ready to hand over when you apply, so be sure to have them on hand.
Most business loan applications are pretty straight forward. If you’ve ever applied for a personal loan in the past, you may find that the process is pretty similar. Of course, you’ll need to supply your additional information, the reason for applying is likely different and so on.
If you run into trouble with your application, be sure to contact your lender directly. They should be able to give you a helping hand along the way.
When filling out your application, be sure to look out for the “five Cs”: character, collateral, capacity, capital and conditions.
Character: your integrity, reputation and ability to pay your debts (credit score, bank statements, other financial history)
Collateral: your security on the loan
Capacity: your business' ability to repay the loan
Capital: your business and personal assets and liabilities
Conditions: the loan’s repayment schedule, fees and charges and other conditions
If you don’t feel that a business loan is right for you, there are other credit options you could look to to get the job done. This will also depend on your financial situation, your business needs and what you’re looking to buy.
You could look at getting a business credit card. Unlike a personal credit card, this would be issued to your business under your ABN. You can have multiple cards for different staff members, which can make paying for relatively small, continual expenses more convenient.
A credit card may not be suitable for a large, one-off purchase for a few reasons. You’ll have a credit card limit, and interest charges can be hefty for credit cards that aren’t paid off at the end of the month.
But if you’re looking to cover day-to-day expenses, or cover a little cashflow shortfall, a business credit card could be a good option.
If you need a few supplies but don’t want to put the expense on your business, you could look into a personal loan. Personal loans are pretty similar to business loans - you’ll just need to apply under your own name rather than your business. Eligibility requirements, loan structures and fees may be different, so be sure to weigh up your options when looking into personal loans.
If you’re looking at taking out a business loan to buy a vehicle, you could look at a car loan instead. There may even be business car loans you could look into. Car loans often have lower interest rates than personal loans, but be sure to compare your options. Car loans are also often secured loans (with the car being security), which can be helpful in snagging a lower interest rate.
Alternatively, you could look at digging into your savings. But this may be difficult depending on what you’re looking to buying. If you need $30,000, using cash may not be the best option. But if you need a few hundred dollars, you could look at digging into your personal savings or business' petty cash.
Ultimately, whether you choose to apply for a business loan is up to you. You may find that a business loan is the best option at your disposal, or you may decide that a credit card or car loan is better.
Either way, always be sure to read over your contracts carefully, do your research and understand exactly what you’re signing up for.
If you’re not sure whether your business can handle a big debt on its back, do some calculations and see whether it’s realistic. If you’re still not sure, you may want to consider speaking to a financial adviser.
Image by Hunters Race on Unsplash
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.
Rachel is a Finance Journalist, and joined Savings in 2021. Coming from a background in the FinTech space, her interests include the innovation of lending technology, property, investing, and more. With a passion for educating and informing people about their finances, she hopes to increase the financial literacy of everyday Australians.
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The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. Read about how Savings Media Group manages potential conflicts of interest, along how we get paid.
Savings.com.au Pty Ltd ACN 161 358 363 operates as an Australian Financial Services Licensee and an Australian Credit Licensee Number 515843. Savings.com.au is a general information provider and in giving you general product information, Savings.com.au is not making any suggestion or recommendation about any particular product and all market products may not be considered. If you decide to apply for a credit product listed on Savings.com.au, you will deal directly with a credit provider, and not with Savings.com.au. Rates and product information should be confirmed with the relevant credit provider. For more information, read Savings.com.au's Financial Services and Credit Guide (FSCG). The information provided constitutes information which is general in nature and has not taken into account any of your personal objectives, financial situation, or needs. Savings.com.au may receive a fee for products displayed.
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