Applying for a business loan is Australia requires you to follow a standard set of guidelines as issued by the local government. One of the preliminary requirements for a business loan is to have a detailed business plan and contingency plan prepared that informs the potential lender(s) about your venture.
While a contingency plan is not really necessary like the business plan, it can help increase your chances of being awarded a business loan. Let’s take a look at some of the things you need to consider in order to qualify for a business loan in Australia.
Questions to Ask
Once you have created a business plan, you should ask yourself the following questions:
- How much money do I need to borrow to start my business?
- What type of loan do I need?
- How long will I need the loan for?
- Can my business repay the loan in the specified time period?
- What interest rates, ongoing fee, and one-off terms are going to be associated with the loan?
- What securities can I offer to the lender?
- How will the securities affect the interest rate?
Types of Loans
For semi regular borrowing, you will need ‘at call’ loans like overdrafts or line of credit that helps you with the cash flow to operate the business. This loan is typically awarded to established businesses that with low cash flow. If you are starting a new business or expanding your business, you will have to borrow funds ‘upfront’, otherwise known as ‘fully drawn advance’. This allows start-ups and growing businesses to borrow the entire loan amount at once.
Repayment of Loans
Upfront loans are repaid on the loan amount with an interest rate on a regular basis. The amount to repay will entirely depend on the length and terms of the loan. As a rule, the longer the loan terms are, the more interest you will have to pay, and ‘at call’ loans typically don’t have fixed terms.
For overdraft loans, remember that the higher the overdraft amount is, the higher the fees will be. Additionally, there are clauses in these types of loans where the lender may demand one-time repayment of the whole loan.
Fixed rate loans, on the other hand, put the lender in risk of changes in interest rates, while in variable loans, the business is exposed to this risk. Hence, in case your business has low profits, variable loans may not be viable for you.
When getting a business loan with securities, i.e. assets like residential, commercial, business assets, and rural property, the greater the value of securities, the lesser the interest rate will be. Do remember that your lender will have the right to legally seize the securities offered in case you are not able to repay the loan on time.
Provided that your business is able to provide in-depth information regarding the use of loan of how it will help in generating profits, you should be able to secure the loans.
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