How do I get a small business loan?

Recently updated on January 19th, 2024 at 07:24 pm

For small business owners, it’s wise to be aware of good financing options that can help manage cash flow, enable a sizeable purchase, boost operations, or expand the business. Here’s a quick overview to help you get started.

How to get a business loan in Australia

1. Be clear about your loan purpose
Why do you need to take out a loan? This is one of the first questions that lenders usually ask – so be ready to clearly, and specifically identify what you’d like to use the funds for. This is often referred to as the ‘loan purpose’ and is one of the core areas lenders use to decide if they will offer you a small business loan. Some common reasons to consider a small business loan is to help with cash flow management, business purchases, and funding growth opportunities.

2. Work out how much money you need (vs want)
Determine the loan amount that you need to help with a particular business challenge or fulfil an opportunity.

Unlike a home equity loan, a personal loan doesn’t depend on the equity you have in your home. Instead, the lender typically decides how much you can borrow based on your income and credit history.

3. Determine what you can afford
Before applying for a loan, it’s essential to determine what you can afford. This should involve considering your loan ‘exit strategy’ – meaning what you need to accomplish to ensure your repayments are able to be made on time. Or in other words: does your business have the capacity to pay off a small business loan? Check out your past financials and make a cash flow forecast. An accountant is well placed to help with this process.

4. Decide on the type of loan you’ll get
There are LOTs of different types of small business loans available from traditional lenders, such as banks, as well as an increasing number of non-banks, specialist lenders, private lenders and fintechs.

One of the main considerations is whether a small business loan is secured or unsecured, as this will impact the rate and term.

Secured small business loans use collateral, such as a residential or commercial property, to ‘back’ (secure) the loan. They usually have lower interest rates than unsecured loans. Secured loans can come in the form of caveat loans, home equity loans, first mortgages and second mortgages.

In contrast, unsecured small business loans are not backed by real estate. Therefore, typically, the interest rates are higher for this type of loan as they’re seen as riskier to lenders. Some examples of unsecured small business loans include equipment finance, invoice financing, low doc business loans and no doc business loans.

5. Consider the type of interest rate
There are two different types of small business loan interest rates: fixed and variable. In a nutshell, a fixed interest rate doesn’t change over the agreed term of the loan. Conversely, a variable rate fluctuates.

6. Check on fees and charges
When applying for any small business loans, make sure to check and compare all fees and upfront costs to ensure you’re across the full price of the loan. Common fees include application fees, early repayment fees, ongoing monthly fees, exit fees and valuation fees (for secured loans).

7. Prepare your paperwork
Typical documentation required by most lenders when considering a small business loan application include obtaining the company’s financial statements (ideally prepared by an accountant), bank statements, proof of individual income and identification. That said, lenders require different types (and amounts) of documents. Traditional lenders, such as banks, usually request more documentation than non-bank, specialist lenders, private lenders and fintechs. The volume of paperwork will also depend on whether a loan is deemed as ‘full doc’ (full documentation required), ‘low doc’ (minimal documentation required) or ‘no doc’ (no documentation required).

8. Consult an expert
Speaking to an expert is important to understand your options and identify which small business loans may fit your business. An expert can also answer any questions you may have regarding various loan types and the loan application process. This can be done directly with the lender, or alternatively, through a mortgage broker.

Mango Credit provides short term business loans to individuals, partnerships, trusts or companies for business, commercial or investment purposes (rather than for personal use).
Common short term business loan requirements include:

Investments
Invoice lags
Tax payments
A cash flow injection
Payment of wages
Purchasing equipment or stock
Buying or refinancing of a commercial property

Our short term business loans are facilitated by caveat, second or first mortgages. The application process is simple, and you can apply online. There’s no credit check or income assessment, and we require minimal documentation. We support businesses seeking $25,000 – $500,000+ to help alleviate challenges or support growth. Funding is available within 3-5 days from application. Our loan terms range from 2-36 months.

Mango Credit is also transparent and honest on fees, charges and interest costs. We make sure that these details are explained upfront to avoid any surprises.

Can you get a small business loan if you have bad credit?

Yes, you may be able to obtain a small business loan – even if you have bad credit. In particular, fintechs, non-banks, private and specialist lenders have more flexible funding parametres. However, keep in mind that bad credit business loans often have higher interest rates applied.

When to consider a small business loan

A small business owner may have a number of reasons to apply for a small business loan. If you find that the business is in need of cash to consolidate debt, improve your cash flow or any other business-related reason, you may consider getting a loan. However, it’s good to note that a business should meet the eligibility criteria or the lending requirements of potential lenders before taking out one. Additionally, the business should have the capacity to repay the loan without harming the business cash flow to avoid debt accumulation.

Small business owners usually seek a small business loan to either help them get out of a bind or, conversely, to take advantage of a great opportunity. Common loan purposes include helping smooth out invoice lags, making large tax payments, supporting payment of wages, purchasing bulk stock, investing in equipment, renovating, buying or refinancing commercial property.

Key takeaway

Small business loans support business growth or help alleviate challenges. When considering a small business loan, be sure to clearly identify your loan purpose, be realistic about the amount of money required, and ensure you have the capacity to repay the loan. Carefully consider the type of loan, interest rate, term, fees and charges. It’s wise to involve an accountant and mortgage broker in your decision-making process.

Mango Credit

Yanis Derums is the Founder and Director of Mango Credit– a leading private lender specialising in bridging loans for personal use and business short term loans for commercial and/ or investment purposes. Yanis has extensive experience with financial analysis, credit assessment, product structuring, and general business management