GUIDES & RESOURCES

How to get a business loan

When you’re in business, there are all sorts of reasons that you might need a business loan. This article will take you through the process of getting a business loan, and a few things you can do to help smooth the way.
*iSelect does not arrange business loans products, but can refer you to Valiant who does provide such services and can help you compare business loan products. Valiant Finance Pty Ltd (ABN 95 606 560 150) holds Australian Credit Licence 500 888. iSelect and Valiant do not compare all providers in the market, or all products offered by all providers. If you click through to the Valiant website and acquire a business loan through Valiant, iSelect earns a commission from Valiant. Learn more

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What can a business loan be used for?

The answer to this will probably be obvious at the time, but there are many reasons that businesses need a loan.

These can include:

  • Cash flow: Magic words for any business. Taking out a loan to bolster your cash flow can help your business run more smoothly. Some lenders could facilitate a loan that you only need to draw down when you need it, so you’re not paying interest on the money unless you’re using it.

    Having accessible cash can help a business cope with fluctuations in demand, as well as take advantage of unexpected opportunities should they arise. So, if you suddenly need extra staff to make the most of a surge in demand, having accessible cash can ensure you don’t miss out.

  • Business Vehicles: If you borrow money to purchase a commercial vehicle for your business, you may well find that the use of the borrowed money is restricted to that purpose only. This type of loan is often secured by the vehicle itself.
  • Business equipment: When borrowing money for business equipment or an asset, you will probably be able to use the asset as collateral against your loan. This may help you get a lower interest rate for your business loan.
  • Purchasing property: A business loan to purchase commercial property may be a sizeable investment for your business. Generally speaking, commercial property loans differ from residential mortgages in several ways. For example, they are typically for a greater amount, plus the lender may be able to lend you a higher percentage of the value of the property.
  • Starting a business: Yes, unless you have suitable funds ready to deploy, you may need a business loan to get things moving.
  • Buying a business: You might be buying your first business, or maybe your existing business has takeover plans. Either way, a business loan could help you finance this transaction.

So, how much do you want to borrow?

There are two ways of looking at this:

  • How much do you want to borrow?
  • How much can you afford to borrow?

All business loans come with their own particular set of eligibility criteria, which can differ by product and lender. iSelect has partnered with Valiant, who can help guide you through this process and understand which loans could be suitable for you based on your circumstances.

Some additional questions to consider which may be helpful on your journey towards securing financing include:

  • What repayment schedule can you comfortably manage?
  • Do you have assets to offer as security or collateral on the loan?
  • Do you have equity in your business?
  • Do you need money up front, or on an as needed basis?
  • Is the cost of the loan worth the value it will offer your business? This is the loan to value ratio, you can read more about that at business.gov.au
  • Do you have a guarantor, should one be required?

What do lenders generally look at when assessing your eligibility?

When you apply for a business loan the lender will probably want to see that you have a good understanding of your business’s finances. You could start by preparing a cash flow statement. You’ll find helpful information on the government’s business website.

A cash flow statement shows any potential lender your business’s current income, net profit, expenses and future projections - important information when assessing your loan viability.

Lenders may also want to see your business plan, as it could provide them with an overview of your finances and your business goals for the future. If you don’t have one, the government website has valuable advice on preparing a business plan.

Other facts that lenders can consider are:

  • Proof of your identification, as the applicant for the business loan.
  • Evidence of your personal financial status.
  • Your business plan, to let the lender see your projected profits.
  • Recent financial reports, from the last 3 years if possible.
  • Business forecasts, including calculations like turnover, margins and break-even analysis.
  • Proof of any property ownership.
  • Evidence of business credit history.

Is a loan tax deductible for my business?

As a business expense, each loan type will have different tax and GST implications for your business. It may be a good idea to discuss this, and consider your options, with a business adviser or accountant.

How do I choose a loan type that’s suitable for my business?

There are a range of different business loan types, some will suit certain business needs better than others.

At iSelect, we’ve partnered with Valiant to help you compare loans and find one that suits your business. Click here to get started comparing loans online.

Last updated: 15/03/2022

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