How banks assess a business loan application

Succeed in your business loan application by knowing what lenders are looking for.

Many businesses rely on loans to get off the ground, and financing is considered a normal part of the business life cycle. To secure a loan you need to make a good impression on your bank and convince them that your business can succeed and that you will be able to repay the loan with interest.

To this end, banks have developed certain criteria for assessing business loan applications. So you have the best chance of success when applying for a loan, you should have a good understanding of what these are.

What documentation do I need to provide?

You will need to provide some level of documentation when taking out a loan. Larger loans, or those with better terms or rates, often require extra information.

You should have all of the following items ready before commencing an application:

  • Personal identification such as a driver’s licence. You will always be required to provide this.
  • Business verification. You will need to prove the existence of, and your ownership of, the business.
  • Financial history. Lenders will almost always want to get an idea of how strong your personal and business finances are. They may ask to see bank statements, sales records, expenditure reports and other documentation to help them ascertain how risky it is to give your business money.

What questions will I be asked when applying for a business loan application?

To start with, many lenders will want to know more about your business and how you plan to spend the money. This will be determined by asking you certain questions. Make sure you have answers for all the following:

  • What is the purpose of the loan? It’s not enough to say that it’s for starting or running a business. The bank will want to know whether the money is for vendors, refurbishment, staff costs, training new employees, expanding your business, handling litigation or anything else. The more specific you are the better. You should know how you plan to spend the money before asking for a loan.
  • How much do you want to borrow and when do you need it by? Banks look for borrowers that have a specific amount of money and time frame in mind. This demonstrates that you have a clear spending plan.
  • What is your preferred repayment plan? You might not get exactly the terms you would like, but you do often have some control over the repayment period and size of repayments. If you can present a proposal, it shows the lender that you’re on top of your business’ profits and expenses. It also proves you have given thought to how you will pay back the loan with interest, which is what the bank mostly cares about.

If you can’t answer these questions your business loan application might not make it past the initial enquiry.


The five Cs: What banks look for in a loan application

The five Cs

  • Character
  • Collateral
  • Capacity
  • Capital
  • Conditions
“The five Cs method” as it’s known, refers to five key factors banks examine when deciding whether to accept or reject an application: character, collateral, capacity, capital and conditions.

By having a good understanding of each of these Cs, you can tailor your business loan application to ensure it addresses each of them.

Here's a breakdown of each of these factors to get you started:


This covers your integrity, reputation and overall willingness to make good on your debts. Lenders examine your character by:

  • Looking at both your personal and business credit history
  • Examining your financial history with an eye to prudent spending, general savings and organised financial management
  • Checking your relations with other lenders, banks and credit agencies and seeing whether you pay off business loans on time
  • Determining your personal and professional stability through factors such as how often you change jobs, whether you had past business ventures that failed, how well you save money, and whether you’ve had any legal issues.

Your character should demonstrate stability, consistency and reliability in financial matters. Providing bank statements, a credit report and copies of compliance-related payments such as GST and taxes can help.


What happens if you can’t pay back the loan? What kind of security can you offer the lender? If you take out a secured loan, it means you borrow against collateral, such as a house or car. This can get you a loan with better rates, but it means the lender can claim the collateral if your loan is not paid. If you take out an unsecured loan, then you are borrowing without collateral.

Lenders prefer secured loans as they are a safer bet. An applicant who is declined for an unsecured loan might still be able to get one that is secured.

These are the types of things that are considered in a secured business loan application:

  • The type of collateral provided. This could be your house or business property, a vehicle, land or any other asset. Different lenders might have different preferences based on their own business interests.
  • The current and future market value of the collateral. Lenders will want to determine that the collateral has an adequate market value across the lifespan of the loan, so they can sell it if you are unable to make your repayments.

You will need detailed information on any property you intend to use as collateral, including its purchase date, current valuation and photos of the item.


Capacity refers to you and your business’ financial ability to repay the loan. A company where the income is less than the requested loan’s interest rate, for example, would have a clear failure of capacity. A great character isn’t enough without good capacity.

Lenders will consider:

  • Your business profits and personal income. Are these enough to pay back a loan?
  • Other debts, any dependants and your living expenses. These make a big difference to whether or not you have the capacity to repay a loan.
  • How stable your earnings are. If they’re consistent, you have a better chance of obtaining the loan you desire. If they fluctuate, are seasonal or can otherwise be difficult to predict, banks will find these conditions less favourable.

Make sure you provide financial information which shows that you have the financial capacity to repay a loan.


This category takes into account your personal and business assets, and liabilities. Having capital reserves is favourably regarded by lenders. It means they can be sold off or liquidated in order to meet loan repayments, either as collateral or by you personally.

What lenders will be looking for:

  • Are your assets sellable? Can they be quickly and easily liquidated for a good return, or are they more difficult to unload?
  • What is your business’ financial position? If publicly traded, what is its share value and equity distribution?

Take along historical balance sheets for past years, and budgeted balance sheets for upcoming years, to help lenders assess your capital.


This refers to the terms and conditions under which the lender offered the loan. These can be more or less favourable for them or for you. When the lender has preferable conditions, it may be willing to give more leeway in a business loan application. Terms and conditions considered include:

  • Repayment schedule. How long it will take to pay back the loan and how frequently you make repayments.
  • Pricing. Higher interest rates and fees mean more money for the bank and make them more likely to accept your loan application, even if it’s a bit riskier.
  • Other conditions. Some loan conditions may include certain requirements to be fulfilled, or contain conditions that impose additional responsibilities on you. A lender will consider the precise terms and conditions of a loan next to your application when deciding whether to accept or decline it.

Be sure to consider all the terms and conditions of a loan in detail. You may wish to contact a financial adviser to help you. If you’re unsure of anything in the contract, your lender is obligated to answer any related questions honestly.

Ready to start a business loan application? Compare these lenders

Rates last updated December 12th, 2018
Name Product Min Loan Amount Max. Loan Amount Loan Term Application Fee Product Description
NAB QuickBiz Loan
1 to 3 years
Apply for up to $100,000 and get a response within 60 seconds. No upfront or ongoing fees and a transparent fixed rate.
Lending Express Business Loans
0.25 to 2 years
Apply online for up to $500,000 and get access to over 25 lenders through Lending Express.
Prospa Business Loan
0.25 to 2 years
A business loan available up to $250,000 that can be funded in 1 business day. Must have a turnover of $6,000+ per month and provide 6 months of trading history, 3 months history for existing business purchases. Note: Businesses taking a loan out will have no repayments until 6th January, 2019
Valiant Finance Business Loan Broker
0.25 to 5 years
A Small Business Lending Specialist from Valiant Finance can give you access to competitive business loans from over 60 lenders. Loans between $5,000 and $1 million are available. Request a call – your loan can be funded in 1 business day.
Moula Business Loan
0.5 to 2 years
A loan of up to $250,000 that can be approved and funded within 24 hours. Available to businesses with 6+ months operating history and $5,000+ monthly sales.
Spotcap Loans
0.25 to 2 years
Benefit from a fixed interest rate and no upfront fees with a loan available up to $400,000. Must have been operating for at least 18 months and have turnover over $200,000.
GetCapital Flexible Business Loan
0.5 to 2 years
Initial draw down fee
A flexible business loan up to $500,000 with convenient top up and redraw facilities. Business must have been operating for 9 months+ and have monthly sales of $10,000+ Flexible Business Loan
0.5 to 2 years
Initial draw down fee
A business loan up to $100,000 for unsecured loans, or $500,000 for secured loans that you can use for any business purpose. Transparent costs and redraw facility available.
OnDeck Business Loans
0.5 to 2 years
2.5% origination fee
Apply for up to $250,000 and receive your approved funds in one business day. Minimum annual turnover of $100,000 and 1 year of trading history required.
ANZ Unsecured Business Loan
15 years
You can choose a fixed or variable interest rate
Apply for a loan from $10,000 with no security required and benefit from flexible repayment terms.

Compare up to 4 providers

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