Applying for Small Business Loans
If you are the owner or operator of a small business in Melbourne (or elsewhere in Australia) you may have considered finding finance to expand your business.
It is a great time to look to expansion as the Federal Government has announced a funding initiative to support small and medium businesses worth 2 billion dollars.
Many small business owners are going to be a little afraid to start borrowing for their business, especially if it is their first time getting serious business capital. The good news is that it does not need to be scary, or difficult. And like getting your first home loan, or your first car loan, it can be an essential activity for the expansion of your business.
Typical reasons a small business owner may take on finance for expansion might include;
- purchasing more stock or inventory for a planned increase in sales
- taking on more staff in order to take advantage of new opportunities or shore up parts of the business
- purchase of equipment or machinery to improve or increase production
- fund marketing costs to get your product to the marketplace more broadly or to a new market
- purchase or fit-out new premises
There are many other reasons, but the above cover the common ones.
Once you have seen a clear need for small business finance, you will need to assemble the team who will see you through.
They will include;
- yourself, and any other important stakeholders of the business
- a good accountant who is familiar with small business
- a good broker who will guide through the process
- depending on the business and other factors, a solicitor as well
Looking at each of these individually;
Yourself and the stakeholders – work out exactly where you want the business to be into the future. Are there elements of this that will need additional funding. Where could this money come from (siphoned from current sales, the inclusion of an investor, your own nest egg, or outside funding)? Then go over the planning with the stakeholders. Include business partners, senior managers, or others whose opinion you respect or rely upon, or must seek.
Your accountant – will help you to structure your business for expansion, minimise tax exposure, and prepare a balance sheet and P&L statement that is going to be made available for any lender. Whilst you will not be providing any false information in these statements, a good accountant will also provide financial statements appropriate to the purpose. If needed, do not be afraid to move to a more appropriate account – we see many small business owners stick with their family accountant to their detriment. Set aside sentiment to do this.
A good broker – you may have been with your bank to do your day to day business for years, or even decades. There are times when it is smart to go to that lender for a business loan. there are times when it is pertinent to shop around for the best deal, or the lender that will understand your business and where it is going. Again, don’t let sentiment get in the way of doing the best deal you can and not overspend on your finance. A good small business broker will be able to understand your financials, your business plan, and know the financial institutions well enough to be able to take you to the best one. They will often have personal contacts within those lenders (called Business Development Managers) who will be able to be spoken to one on one, thereby explaining any difficult or tricky parts of your application.
Preparing an application for a small business loan can be a little more complex than a home mortgage, and so will need the care and attention of a professional.
The broker will step you through each part of the process, will let you know what documents you will need and when, as well as let you know the options you have of lenders, and if problems or questions arise, how to deal with those.
Finally a solicitor – your broker will advise you if a solicitor is needed. It is possible that agreements should be drawn up and signed if directors guarantees or collateral or going to be used, especially where there are business partners are involved (even if you are good friends). If purchasing property or equipment, have a lawyer look over any contracts. Finally, it is smart to get a solicitor to read over any contract presented by a lender. These are usually little less standard than a home or car loan, so make sure it is understood.
Prior to going to see a broker, you may want to get yourself prepared. Here are a few things you might want to have in hand;
- Have a reasonably clear business plan. This might be a rough draft of your idea that the broker can flesh out, but it should show why you would want to finance the business, some idea of how much you need, and how that will make more money or expand the business
- Have your business financials as up to date as possible. I appreciate this may take some time, but get it underway nonetheless
- Review your financial position yourself, are your taxes being paid, do you have your terms in place for money owed
Finally, before you proceed, ask yourself if you are looking for a lender to provide finance for expansion and making more money, or because the business is losing money and you need to shore it up. If the later you will need to be certain that you have solved the reason why the business is losing money before you shovel more into it. You are also less likely to convince a lender to fund you if it is the later.
Getting business finance does not need to be hard, and in the hands of a good broker, there is nothing to be afraid of.
If you are ready to get started, give me a call or send a message from this website.