The decisions you make around the growth of your business will control the overall experience. Growing a business can be a great experience, but with a little time and planning it can be an awesome experience. Business depends on funding and the main factor that will dictate your business growth.
So, how do you plan a business loan and create the proposal for the lender?
First, you need to make sure the loan you want is matched to the purpose the loan is required. As an example, if you are buying equipment, you should think about a loan over 3 to 5 years. Matching the loan duration to the warranty is a good start. You want to roll over the equipment before the maintenance becomes a problem and you still have equity in the machinery for resale. You’re looking for an Equipment Loan.
If you need stock, or cash for a marketing campaigns, you should consider a short-term business loan.
An accredited Finance Broker can help with good advice and their experience. They do this every day. There are many products out there and getting a helping hand can save you time, money, but best of all they can guide your purchase to become a planned investment.
First check if the Broker is accredited. Most business lending brokers are accredited to the FBAA or MFAA, solid associations with rules and standards. You should see these logos displayed in the business advertising and on their paperwork. If they are not accredited, be careful.
Once you find your broker, you can discuss your specific needs and get an understanding about them and their ability to help you. But, before you engage your broker, ask a few questions about how long they have been raising funds for businesses and how long have they been accredited?
You need to know how many different lenders they have access to, they may only have 4-6 accreditations to lending sources. This limited range of lenders gives you less selection, possibly making you pay to much interest on your loan. You need a broker with strong lender connections.
Brokers and loans are not one-size-fits-all. Brokers and lenders specialise in certain deals, you need to choose the lender that can help with the best deal and rates.
So, what do you need for a business loan application?
First, understand the finance you want. This will ensure you are getting the best product and value. You will be paying for the money you borrow, you’re the customer, you do have some say in the way the deals are structured and repaid. You don’t need to be placing yourself under pressure just to get the deal over the line.
You must be certain you can pay and the schedule must match your repayment schedule and cashflow. Brokers are there to help. Apart from the returns they make on the deal, they still want you and your business to have a great experience and become successful, they want you back and the way to do that is to work hard and find the best deal.
Sometimes, taking a smaller, older piece of equipment, over a longer period might be the better solution. Other times, the option may be to purchase the best piece of equipment, with better reliability and better profit potential.
When planning for a loan, you need to understand, not only the income benefit to you but also the cost, therefore you need to do a little analysis to prove the point. Your broker will help with this. Basically, how much income (or savings) will the loan make for you.
Entrepreneurs always like to exaggerate income, but you also need to work out and understand the worst-case scenario. This will give you a balanced view of the purchase and the loan. Find out the monthly expense of maintaining the loan and the income required to make the payments. This is by far the best way to make sure you are not overspending, and you can contain the costs of a possible blowout in your budget. Understanding the metrics will help to guide you through, and again, consult with your broker.
Even though brokers make their commissions based on the size of your loan, the best brokers will not push you to the largest deal. A good broker listens and advises you on making the best decisions.
Your broker will also advise you of what will be required for the business loan assessment. Generally, the size of the business loan you require, will be equivalent to the financial information they require.
The basic information is:
- Application page and privacy act
- Identification
- Purpose of the loan
Other information required may include:
- Financial information on the business
- Asset & Liability statements of owners
- Tax portal information
- Brief history on the business and its owners
- 3 months bank statements
Your broker will assist you with specific loan and information requirements.
A good broker will provide you with multiple funding options, they will make sure you have a good experience, and they will support you to make the right decision.