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.
1. Find a specialised broker
Commercial lending is very different to 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 things you should ask a broker is what experience they have with commercial and business loans, and how many lenders they are accredited with in the commercial space,” says finance broker Andrew Johnson. “This is to ensure you are presented with a range of options that give you maximum choice.”
2. 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,” says the finance broker. “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.
3. Do a self check
Loan to value ratios (LVR) on business loans are 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,” advises Andrew.
4. Further tips
Work with your broker to negotiate terms and product features that best 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,” Andrew says. “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 a specialised equipment and commercial Legal Home Loans broker who will help make the process as streamlined as possible.