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Checklist Before Applying For Commercial Business Financing

The most popular and convenient way to obtain financial leverage is a small business loan. Does this mean this is the only or the best way for you? Low-interest rates and flexible payment schedules are very beneficial in most cases. Add to that a proactive approval process that makes you money quickly, and there may not be many downsides to your success. Here is a checklist for preparing for a business loan.

Private business loans pre-application checklist

The checklist below offers the criteria to look into before applying for a business loan.

  • Do Your Research

Before deciding how to finance your business expansion, you should be able to answer the following questions with certainty.

  • Why do I need a loan?

What aspects of your business will you use that money for? Do you want a safety net to keep payroll running when cash flow issues arise? Do you need money for more inventories? You must be certain as to why you need the funding for a lender to consider your proposal.

  • What kind of credit do I need?

There are numerous types of loans, including short-term cash flow loans, lines of credit, second mortgages, and accounts receivable financing loans. Depending on the reason for the funding your business needs you can negotiate the terms of the loan with the appropriate lender.

  • What types of loans are available?

Lenders may consider start-ups or a business with a track record of success. The longer you can run your business without credit, the more likely you will get credit from your lender when you require funding. Try to run the company for six months without a lender. However, in some cases, you may need more than two years of history. Private lenders will offer funding for start up businesses so never be discouraged.

  • How much money do you need?

Have you considered all your financial needs? Consider why you need the funding and ensure that you have calculated how this will be used in your business and ensure that you apply for enough to get you to your business goals. Lenders will fund for any worthwhile business use.

1. Access your company’s past performance.

Any borrower should be prepared to demonstrate their financial strength to a private business loan lender. Ask questions like, is your company in the best position for loan approval and, more importantly, do you have the documentation to prove your claim? A simple accounting tool can help a lot with this. Ensure your company’s financial history is fully separate from your personal accounts and expenses. Traditional lenders will require full financial documentation before assessing any business loan application.

2. Determine what collateral is available

If you have personal property that can be used as collateral or security for the loan, you are in a better position than others. Security can be in the form of real estate assets, or business equipment.

3. Determine what your competitors are doing

Your business is not the only one you need to consider to get a small business loan. You also should keep an eye on your competitors to learn from them and find ways to be better. Here are some guiding questions as you analyze the competition and improve your start-up to look good in front of potential lenders and investors. Competitor product pricing makes a massive difference in the money needed to support them.

  • What is your reputation in the market?

Are there gaps in the market that you can fill because your competitors missed something? Check out the social media threads and online reviews. These are all the pieces of information you collate to ensure that you stay ahead of competitors.

  • What do they sell?

Find out what products and services different customers buy and how they market them.

  • What are their strengths and weaknesses?

Your product is not actually what you sell to the lender. Financial professionals are more interested in the business surrounding your product. Therefore, you need to understand the strengths and weaknesses of your competitors so that you can take advantage of them.

Once you have all the information on your business and competitors, ensure you have everything that meets the lenders guidelines to assist with the application process. The more criteria you can meet the easier it is to obtain private business loan.

As a starting point, the documents more traditional lender require to support the loan application are:

1. Commercial Purchase Agreement
2. Appraisal Documents or Estimates for Machinery, Vehicles, and Other Equipment
3. Business Plans and Financial Projections, Including Market and Competitor Valuations
4. Valuation of security property

  • Check your credit score

A credit score is a significant factor that traditional lenders consider while analyzing a loan application. It is solid evidence of credit worthiness of a borrower. A good credit score signifies that you are a less risky borrower and guarantees you better terms of loans. A low credit score could come with a higher interest rate.

If your credit score is low or your history of payments is not up to the mark, you should focus on improving it. Pay all the utility and credit card bills on time. Do not default on the payments of the loan.

Final Verdict

Finding the right loan at the correct interest rate for commercial investment or business can be difficult and time-consuming. Additionally, there are many options, such as a second mortgage, equipment financing, credit cards, and many more to select from. Don’t forget traditional banks and lenders have strict criteria you must meet; however Private lenders are less restrictive as it their aim to help businesses with any funding required. We hope now you know exactly what you should look for and prepare to get approval for a business loan.