Applying for a business loan is a completely different process to that of a home loan application.
To ensure you don’t lose your way, we’ve set out a clear path for you to follow.
- Find a specialised broker
Commercial lending is very different from residential, so when searching for a broker, it is important to seek one who is not only accredited but also experienced in commercial and business finance.
“The first thing you should ask a broker is what experience they have with commercial and business loans and how many lenders they are accredited within the commercial space,” says Justin Smith, Principle of Smartline Rockingham. “This is to ensure you are presented with a range of options that give you maximum choice.”
- Gather your paperwork
Unlike residential loans, where much of the paperwork is straightforward, business loans are assessed on a case-by-case basis, which means the documentation that needs to be provided varies depending on the situation.
“Every deal is taken on its own merit, so consumers need to be prepared that lenders will ask for extra information outside of what would normally be expected,” he says. “In a nutshell, however, you’re going to need proof of income and expenses, assets and liabilities, essentially anything that demonstrates that you’re asset rich.”
Other advisable forms of paperwork include tax records, exit strategies and of course, your business profile so that lenders know what kind of business they are lending to.
- Do a self-check
Loan to value ratios (LVR) on business loans is lower than those in residential. In comparison to the potential 95 per cent you could obtain with LMI on a home loan, you may only get between 50 to 70 per cent for its business counterpart, which means having extra money or equity to put into the deal deems you an ideal applicant.
“Having a good income and asset position is crucial as commercial loan terms are usually a lot less, which would make the monthly repayments a lot higher,” Smith advises.
- Further tips
Work with your broker to negotiate terms and product features that suit your situation. This will help avoid extra onerous tasks that are sometimes expected with commercial lending.
“Ideally you would want a loan that doesn’t require ongoing reviews and one that has a long loan term,” he said. “Some banks may offer a better rate with only a three-year loan term for example but that just means you’ll have to renegotiate your rate and fees once your term ends. This could potentially mean forking out more application and establishment fees, which could add up to an extra $1500 to $2500 expense.”
If you are considering taking out a business loan, speak to Smartline Rockingham for some advice.