Business finance: what lenders are likely to look at

The purpose of the finance matters

A lender will usually want to understand why the business needs the funds.

Common purposes can include:

• purchasing equipment;
• buying a vehicle;
• working capital;
• expansion;
• purchasing a business;
• refinancing existing debt;
• property-related business finance.

The purpose can affect the type of product, loan term and information required.

Lenders want to understand the business

Depending on the application, a lender may look at:

• how long the business has been trading;
• industry and business activity;
• ownership structure;
• revenue;
• profitability;
• cashflow;
• existing liabilities;
• tax obligations;
• credit history.

A well-established business may be assessed differently from a newer business.

Financial information may be required

Depending on the lender and loan type, supporting information may include:

• financial statements;
• business tax returns;
• BAS statements;
• bank statements;
• management accounts;
• accountant-prepared information;
• details of existing loans and commitments.

Some lenders also offer streamlined or alternative documentation options in appropriate circumstances, but these still have eligibility and evidence requirements.

Cashflow is important

A lender generally wants to understand whether the business can comfortably meet the proposed repayments.

This may involve reviewing:

• operating cashflow;
• existing debt repayments;
• seasonal fluctuations;
• business expenses;
• available cash reserves.

Strong revenue alone does not necessarily mean strong borrowing capacity if expenses and commitments are also high.

Security can affect the application

Some business loans are unsecured, while others may be supported by business assets or property.

The type and value of available security can affect:

• lender choice;
• interest rate;
• loan amount;
• loan term;
• documentation requirements.

Existing debt matters

Lenders may consider existing:

• business loans;
• equipment finance;
• credit cards;
• overdrafts;
• tax debt;
• home loans and personal liabilities where relevant.

The overall level of debt and repayment commitments can affect serviceability.

Preparation can make the process easier

Before applying, it helps to have:

• a clear explanation of what the funds are for;
• up-to-date financial information;
• a list of existing debts;
• details of business ownership;
• supporting documents readily available.

Clear information can make it easier to identify suitable lenders and avoid unnecessary delays.