How to apply for a business loan

The first step is to assess whether you need business finance. It’s important to think about:

• The impact on your business of taking on debt
• Whether you can meet the repayments without putting your business under pressure
• Whether you’re borrowing money to grow your business or simply to stay afloat
• Whether you can reduce your costs to allow you to borrow less.

It’s also important to understand exactly what you’re taking on, including the total amount of interest and any terms and conditions of the loan, before committing to any borrowing.

If you decide that applying for business finance makes sense for your business, the following steps will help.

Your bank will need certain information to assess your application. They’ll also want to check the borrowing is affordable. Before you go and see your ANZ Business Specialist, make sure you have documents to show:

• How much it’ll cost to set up, buy or expand the business – including what stock, equipment, set-up costs or working capital you’ll need
• How much you think you’ll need to borrow, and how much you’re contributing yourself from sources such as savings, assistance from family, or any investors you already have on board
• What you’ll use to secure the loan if anything – borrowing against your house is common, but there are other options available.
• If you’re applying for finance to lease premises, what the lease terms are – it’s important the lease terms fit with the loan (and loan terms) being requested
• If you’re buying a new business, whether there is a restraint of trade and a turnover warranty – both of these should be included on the sale and purchase agreement
• How you intend to repay the loan, ideally from the extra profit the business will make from the extra capital you’ve borrowed
• If you’ve got any other sources of income you can use to repay the loan, or any other debt.

Providing the bank with this information at the start shows you’ve thought carefully about the basics.

Generally you’re looking to borrow as little as possible. However it can be a good idea to add a small buffer, which you may not require at first, but would save you going back to the bank if you do end up needing it.

You also have to show how much of your own money you plan to use. For example, if you were buying a business and it cost $500k to buy, and you have $200k of your own money, you need to borrow $300k.

If you need $300k for new equipment, the bank will want to know your existing assets total, so they can get an idea of what percentage of assets the new loan takes. Having $1m in assets and applying to borrow $200k is better than the other way around.

It’s important to show that whatever you borrow, you can pay it back – no-one wants to see your business fail. That’s why you’ll need to provide:

• Personal statement of financial position – this outlines everything you own as well as what you owe, and your income and living expenses (including those of your partner if you have one, or any dependants).
• Details of how much you intend to take from the business as a salary or wage, and if you’ve got another source of funds in reserve
• Business plan – the bank will possibly want to see it before they’ll consider lending you any money. 

Our article on business plans has a template you can use.

Your bank will possibly request a cash flow forecast. Our article on cash flow forecasting has some great tips, as well as a template to help you get started.

You may have to provide some kind of security for the loan, such as real estate or business assets. You’ll likely have to include a registered valuation for any property security. For a commercial property, a copy of the lease is handy.

If you’re borrowing in the name of a company or trust, you may also be asked to personally guarantee the loan.

In addition to your business plan, you’ll also want to:

• Provide details of who owns the business, whether you’ll be working in the business full-time, and who else is involved in management
• Provide details of the operational structure, if you are a company, partnership, sole trader or trust
• Show you’ve had professional advice from your financial adviser or accountant. Lenders also like to know you’ve sought legal advice.

Show what experience you have in both your industry and running a business, including:

• Past business experience
• Details about any business partners and key personnel
• Training and support you’ll receive
• Any qualifications that relate to your industry and business.

It’s important to show your business can generate enough cash to meet your outgoings (with your new loan added in), and provide an income. For example:

• Monthly profit and loss projections
• Monthly cash flow forecasts.

You should also describe why you think your sales are achievable, how you’ll achieve your projected profit margins, and any key expense items. Make sure you allow for the extra costs in achieving higher sales.

All these steps are important not just for your bank, but for your business too. It’s important you think carefully about the financial impact of taking on debt and ensure your business can continue to survive – and thrive. Being well prepared will also make the application process simpler and more efficient.

Once you’ve made an appointment with an ANZ Business Specialist, send them your prepared documents ahead of time so they have time to review beforehand.