How do I prepare for a business finance application?

Lenders make decisions on the information in front of them. When that information is incomplete, out of date or unexplained, the application stalls or is declined, even if the business is sound. Preparing well gives you more choice and a faster answer.

This article is the preparation plan. For the documents themselves, use the business loan documents checklist. For what the lender does with them, read how lenders assess business loans.

Step by step

1. Get your lodgements up to date

Overdue BAS, income tax returns or financial statements are among the most common reasons an application stops.

• Lodge any overdue BAS and returns, even if you can’t pay the full amount yet. See overdue BAS.
• If you owe the ATO, get a current statement and consider an ATO payment plan.
• Ask your accountant how soon your latest financial statements can be finalised.

If your financials are behind but your BAS is current, a low-doc loan may be an option.

2. Tidy your business bank accounts

Many lenders read your bank statements line by line, often through a direct bank feed.

• Keep business and personal transactions in separate accounts.
• Avoid dishonours and overdrawn days in the months before you apply.
• Note any large one-off deposits or transfers so you can explain them.
• Close or consolidate accounts you no longer use, so the picture is clear.

3. Check your credit reports

Get the credit report for each director or owner before a lender does. The OAIC says a credit reporting body must give you your consumer credit report free once every 3 months, and it names Equifax and Experian. They may hold different information, so request both.

Fix any errors first, which you can do yourself at no cost. Business finance with bad credit explains how.

4. Prepare a short funding case

business.gov.au says lenders usually want to see your business plan before they approve a loan. For many business loans, a one-page funding case is a useful start. Cover:

• How much you need, and how you arrived at the figure
• What it’s for, as specifically as possible, with quotes or contracts
• How it will be repaid, from cash flow or from a specific event such as a sale, refinance or contract payment
• What it will change, for example extra revenue, lower costs or a problem solved
• Any issues and what has changed since

Larger loans, acquisitions and start-ups usually need a full business plan and forecasts.

5. Know your numbers

Be ready to answer these without hunting for them:

• turnover for the last financial year and year to date
• average monthly deposits and your lowest balance in recent months
• gross and net profit
• existing debts, with the lender, balance, repayment amount and frequency, and end date for each
• any ATO debt and payment plan
• your cash flow forecast for the next 6 to 12 months

business.gov.au suggests you understand your income, expenses, debts and cash flow before you apply. How much can my business borrow? helps you estimate your capacity.

6. Have security details ready

If you’re offering security:

• Property: the address, who owns it, a recent rates notice, and payout figures for any existing loans. Everyone on the title will need to be involved.
• Equipment or vehicles: the supplier’s quote or tax invoice, and details of any trade-in.

Work out your likely LVR in advance using what does LVR mean?

7. Be upfront about issues

Tell the lender about past defaults, ATO debt, a previous business failure or a gap in lodgements at the start. Include a brief explanation and evidence. Lenders will usually find these issues anyway. An issue you disclose is far easier to work with than one discovered halfway through assessment.

8. Choose where to apply, then apply once

business.gov.au suggests you compare lenders and check that a lender is legitimate before you apply. It also suggests you can bring your accountant or adviser to meetings. Pick lenders whose published criteria you meet for time trading, turnover and security, rather than applying widely and hoping.

Common reasons applications stall

• Overdue lodgements or unfinished financial statements
• Undisclosed ATO debt that appears on a statement or credit file
• Unexplained transactions, such as large transfers, cash deposits or payments to other lenders
• Credit report surprises, including defaults the applicant didn’t know about
• Too many recent enquiries from applying to several lenders at once
• A vague purpose, such as “working capital” with no figures behind it
• Security problems, such as a lower valuation than expected, a co-owner who won’t sign, or a first mortgage lender that won’t consent
• Slow responses to lender questions or missing documents
• A mismatch between the product and the business, for example applying for an unsecured loan that the business’s turnover can’t support

If you’re declined, business.gov.au suggests asking the lender for feedback, then working on what you can change before you apply again.

Important things to know

• Preparation takes time. Lodging overdue returns and correcting credit reports can take weeks, so start early.
• Don’t let deadline pressure push you into expensive finance. If the need is urgent because the business can’t meet its debts, read when borrowing is not the answer and talk to your accountant first.
• Accuracy matters. Everything in your application needs to match your statements, BAS and credit reports. Inconsistencies cause delays even when there’s an innocent explanation.
• Keep copies. Keep a folder with everything you send, so you can respond quickly if the lender asks follow-up questions.