Requirements to qualify for business loans
Find out if your business may qualify for a loan here.
Running your own company can be daunting, especially considering the kind of money it takes to launch and maintain a successful business. Before applying for financing, it's important to understand what lenders are looking for and the business loan eligibility requirements you may need to meet.
How do I know if I'm eligible for a loan?
Just as an individual has to meet certain criteria when applying for a personal loan, your business is evaluated based on a key set of factors when you apply for a business loan.
While there's no way to know for sure if your business will be approved, you can start by checking the minimum eligibility requirements for a business loan and making sure you can meet them. Then, consider whether your business can afford the loan and what information you can provide as evidence of its financial capabilities.
What eligibility requirements do lenders consider when approving business loans?
Once you've identified your financial issues and chosen a loan that suits your needs, it's important to make sure that your business fits the lender's profile of a “reliable borrower”.
- Time in the industry. How long you've been operating will have an impact on your application, but the time required will vary according to the kind of loan you need. For example, a revolving line of credit usually requires that your business be at least one year old, while invoice factoring can be granted to businesses that have operated for a minimum of six months.
- Minimum revenue. Depending on the kind of loan you need, your earnings will be taken into account when you apply. The minimum revenue required depends on the type of loan and how much you want to borrow. For example, you may need to make a minimum of $200,000 per annum to qualify for a line of credit. An equipment loan application, on the other hand, normally doesn't consider your minimum earnings at all.
- Personal credit score. You have to show that you're able to repay a loan. A director's credit history can come into play when being assessed for a loan and a good credit score may be required.
- Company credit. In addition to personal credit scores, the company's debt record may also be examined for unpaid defaults on existing loans. Companies have credit files and credit scores which can be accessed and assessed by prospective business partners and lenders. If you can't repay the loans you already have, lenders may think you might have trouble meeting obligations on any other lending product.
- Tax debt. Depending on the kind of loan you need, owing money to the Australian Taxation Office (ATO) can negatively affect your application. However, you can look into a loan to specifically pay off tax debt if you want to reduce the risk of lenders declining your application based on outstanding ATO payments.
What documents will I need to apply?
You will generally be asked to provide the following documents when applying for a business loan:
- Financial statements from your accountant
- Proof of personal income and identification
- Personal and business bank statements
You may also need to provide further information if you have a startup or newer business, such as your cash flow projections, detailed business plan and lease agreement.
No matter what you need business finance for, there is a range of options available. By having a good understanding of the eligibility criteria, you can make sure you apply for the right kind of loan and increase your chances of approval.
What kinds of loans are available to businesses?
- Revolving line of credit. A popular option among Australian businesses, a revolving line of credit provides financial relief for short-term cash flow issues. You only pay interest on the amount you use and may have the option to reduce interest by making early repayments.
- Invoice factoring. This allows you to borrow against outstanding invoices for up to 85% of the total invoice value. You repay the lender once your invoices have been paid. Unlike other types of loans, this option may be approved for companies declaring bankruptcy. Compare the lenders below.
- Equipment loans. These loans operate on the same principles as car or home loans, where you borrow the money to purchase equipment and then repay the loan in fixed instalments over a set period of time.
- Purchase order financing. If you can't fulfil an order due to financial constraints, you can apply for financing based on the size of your order. The lender then pays your suppliers directly.
- Unsecured business loans. Many business loans are guaranteed by using valuable assets as collateral, such as equity in your home. An unsecured loan requires no such collateral, but approval is often subject to more stringent criteria.
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Frequently asked questions
How long does it take to be approved for a business loan?
This will vary depending on the lender and the type of loan you require, but some loans will be approved and even funded within 24 hours.
Can I still get a business loan if either my company or I have a bad credit history?
Yes, you can still be approved for certain business loans even if you have bad credit. However, your options may be limited and you may be charged a higher rate than someone with good credit history. Read our guide to bad credit business loans for more information.
How much can I borrow on a business loan?
This will depend on the lender as well as the size and age of your business, but you may be able to borrow anywhere from $5,000 to $1,000,000.
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