Small Business Loans: tips for success

Author: Michelle Griffiths, Partner, TAG Financial Services

In my recent article, 10 tips to get started in Small Business Finance I talked about how the banks assess your information when you are applying for a loan.

In this article I outline how banks assess their exposure to risk and provide my top loan tips for success.

The 5 Cs of Credit

Sal Cinque, CEO of TAG Finance and Loans, is an experienced finance broker and business executive. He explains that each bank assesses their exposure to risk against their individual set of credit policies which are driven by the ‘5 Cs of credit’.

Each bank develops their own set of policies and assesses their exposure to risk differently. This can significantly affect your borrowing capacity and the ultimate outcome of your loan application.

The difficult thing for borrowers is that there are many differing policies, and they are not readily available. This is where engaging the services of a professional finance broker can be invaluable, as they will guide you through the process by firstly:

    • Identifying the lenders that are most likely to approve your loan by taking into consideration your business and financial frameworks, needs and objectives, conducting a preliminary credit assessment and measuring your borrowing capacity across a wide range of lenders; and then
    • Presenting options to you with the most favourable structure, interest rates and terms to suit your purposes. This may include fixed or variable, principle and interest or interest only, offset, or basic with redraw, lines of credit or any combination.

Most of the publicly available information and loan calculators are merely a starting base to allow you to see the range of options and rates on offer, but that doesn’t help with understanding which banks will lend to you in your specific circumstances.

My Loan Tips

Tip 1
Make sure you have a strategy for lending. This includes being clear on how much you want or need, the purpose of the loan and when you need it. Remember that if your financial information is strong then it is often easier to get more money from the banks at that point, rather than waiting until you need it.

Tip 2
Give yourself as much lead-time as you can when applying for any finance. Loan applications will often take several weeks and there may be a series of questions to answer or elements to justify before you get an acceptance. Then there is the process of the loan documentation and the settlement of the loan. Each of these steps takes weeks and sometimes months, so don’t leave it until you need the money next month to start the loan application process.

Tip 3
Do not just keep applying for loans at multiple banks, as each application leaves a ‘footprint’ that will show up next time you apply for a loan. Banks will see this and may reject you outright based on this documented pattern.

Tip 4
Make sure you are talking with your accountant or financial advisor along the way and before you apply for the finance. They will supply some specific information to the bank or broker to assist with your application process, so best to get them on board nice and early. They may also be able to suggest which name the loan should be in to assist with ensuring the correct and best tax treatment (these things can be expensive to change later).

Tip 5
Employ a loan broker with business finance experience to assist you. Have them assess your information first to narrow down what lending institutions are available that will look favourable on your loan application. Then work with them to arrange the best application submission and the loan structures you want. Talk to them about fixed interest rate terms and options, as well as interest only loan options that are available, so that you can understand your choices and the impact this may have on the bank you choose to seek the finance from.

Remember that with loans as well as anything to do with your business – prepare for the worst and plan for the best. Be detailed and thorough and get the right advice along the way. Not only will this ensure you get the best result, but it will also save you money in the longer term.

Any Questions?

If you have any questions or would like to discuss further, contact us on 03 9886 0800 or via email.


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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2022. Please do not reproduce without the expressed written consent of the author.