The bank may ask for personal guarantees
It is likely that you will be asked to provide a personal guarantee when borrowing money for a small business. A personal guarantee means that you are willing to pledge your personal assets to protect the lender where you are unable to re-pay the loan. If your business is a registered company, then the bank is likely to ask for guarantees from all directors.
Prepare a business case
Before you approach a potential lender for funds, you should prepare a business case that justifies the need to proceed with the project you are looking to fund. For more information on how to prepare a business case or for a template for documenting a business case, click here.
Most retail banks offer loans to the small business sector. They all offer different products and services. Make sure you shop around to find the right loan that suits your needs and consider whether it makes sense to consolidate your business with one bank to get the benefits of a package or have different providers for different products. You may also consider visiting a finance broker, as they can help a small business evaluate the options of many lenders.
Give yourself time to do some homework
The first aspect of the process is to find out what banks have to offer you. Your existing bank may not be the best for your business and may not offer you a loan. Do your research, talk to other people in business, look at websites and gain plenty of background information about what all the banks offer. You do not have to confine yourself to a bank within your own town or region. Technology makes it possible for you to work with a bank based anywhere in Australia.
Don’t wait until you are desperate to ask for money. This is not a good foundation for a successful loan application. The bank wants to feel secure in its decision. It does not want to hear that your business needs the loan to survive but instead that your business needs the loan to grow and achieve its goals.
Build your relationship
Build relationships with your bank and let the bank know in advance what the business is doing and what the potential requirements for the business might be. Then when you apply for a loan the business can show that it plans, and that it meets the expectations of both your business and the bank.
Understand the terms and conditions
When you take out a loan, there will be certain obligations that you will need to adhere to. Make sure that you understand what will be required from you and your business before you accept the loan offer. If you don’t understand the legal terminology, seek help from an advisor.