8 Steps to Take Before Applying For A Business Loan (What Lenders Look For)

Applying for a business loan is more than filling out forms—it’s about preparing your business for a financial leap. But here’s the catch: lenders have expectations, and meeting them is key to your approval.

Let’s take a closer look at eight practical steps to ensure your loan application stands out. From understanding your needs to perfecting your financial documents, we’ll help you prepare like a pro!

Step 1 – Understand Your Business Needs

Before researching how to apply for a business loan, clarify why you need the funds. Lenders will often ask about the purpose of the loan, and having a clear answer demonstrates professionalism and preparation.

Here are the top reasons for getting a business loan:

• Purchasing equipment or technology
• Managing operational cash flow
• Expanding to new locations or markets
• Funding large-scale marketing campaigns

The purpose of your loan will also influence the type of loan you choose. For instance, if you’re buying machinery, an equipment financing loan may be more suitable than a general working capital loan.

Step 2 – Research Different Types of Business Loans in Australia

Not all loans are created equal. Take the time to understand the various options available to Australian business owners.

Types of loans to consider include:

• Secured business loans: Backed by collateral such as property or inventory. There is often a lower interest rate on these loans, but if you default, you may lose your assets.
• Unsecured business loans: Require no collateral but may have higher interest rates and stricter credit requirements.
• Lines of credit: Grants flexible access to funds; this is perfect for filling in temporary cash flow deficits.
• Equipment financing: Tailored for businesses that need to purchase or upgrade machinery, vehicles, or tools.

Researching these options ensures you choose a loan that aligns with your business needs and repayment capacity.

Step 3 – Decide on the Loan Amount

Knowing how much to borrow is critical when applying for a business loan. Over-borrowing can lead to excessive interest payments, while under-borrowing may leave you short of what’s needed to achieve your goals.

Here’s how to get a business loan by calculating your funding needs:

1. Identify the costs associated with your goal (e.g., equipment purchase or rent).
2. Account for additional expenses like fees, taxes, or unplanned costs.
3. Factor in your projected revenue to determine how much you can comfortably repay.

Having a clear figure will also make your loan application more precise and credible in the eyes of lenders.

Step 4 – Check Your Business and Personal Credit Scores

Your credit score plays a major role in a lender’s decision-making process. Lenders assess your creditworthiness to determine the risk of lending to your business.

Australian lenders typically evaluate:

• Business credit score: Reflects your business’s financial history and repayment behaviour.
• Personal credit score: Especially important for small businesses or sole traders without an extensive business credit history.

Ways to improve your business credit score:

• Pay off outstanding debts where possible.
• Scrutinise your credit report and watch out for any discrepancies.
• Avoid applying for multiple loans within a short timeframe, as this can negatively impact your score.

Step 5 – Gather Key Financial Documents

Having your financial records in order can significantly speed up the loan application process. Most lenders will require comprehensive business loan requirements to assess your business’s financial health.

Commonly requested documents include:

• Profit and loss statements
• Balance sheets
• Tax returns (business and personal)
• Bank statements

Providing accurate and well-organised financial documents shows lenders you’re serious about managing your finances responsibly.

Step 6 – Develop a Clear Business Plan

A strong business plan is more than a formality—it’s a powerful tool for securing a loan. Lenders want to see how you plan to use the funds and how this will contribute to the growth and success of your business.

Key elements of a compelling business plan:

• Clear revenue projections
• Detailed growth strategies
• A detailed plan of how the loan will be allocated
• Evidence of market research and competitive analysis

A professional and structured business plan instils confidence in lenders and can give you an edge over other applicants.

Step 7 – Compare Lenders and Loan Terms

Not all lenders are the same, and it pays to shop around for the best deal. Comparing lenders can help you find more competitive interest rates, flexible repayment options, and loan terms that suit your business needs.

Factors to consider when comparing lenders:

• Interest rates and fees
• Loan repayment terms and frequency
• Customer service and accessibility

Working with a business finance broker can simplify the process of applying for a business loan. They can match you with a wide range of lenders based on your unique needs. Their expertise can also save you time and effort while ensuring you get the best deal.

Step 8 – Assess Your Debt-to-Income Ratio

Your debt-to-income (DTI) ratio measures the proportion of your income that goes toward paying debts. Lenders use this ratio to evaluate whether you can afford to take on additional debt.

How to calculate your DTI:

1. Add up all your monthly debt repayments.
2. Divide this total by your monthly income.

Maintaining a low DTI demonstrates financial stability and makes you a more attractive candidate to lenders.

Take Charge of Your Loan Application!

Looking for expert guidance? Contact Cabbage Capital, your trusted business finance broker.

Whether you’re unsure of the best loan type or need help comparing lenders, we can provide tailored advice and support every step of the way. Don’t leave your loan application to chance—schedule a meeting or call us at +61 418 574 655.