What to consider before taking out a business bank loan

What to consider before taking out a business bank loan


Many businesses, whether they are only just starting up or have been in the market for a number of years, will need a bank loan at one time or another. However, before you apply for a bank loan, it is important to think things through to ensure that you know if you should get one, if you are getting it at the right time and how you can make the most out of a loan.

Here are some questions business owners should ask themselves before beginning their bank loan application:

How likely is it that I qualify for the loan?

If you believe that your business won’t qualify for a bank loan, then you will only hurt your credit rating if you apply for a loan you won’t get. Being rejected for a loan can also make it more difficult for a business to borrow in the future.

Will the loan help the business grow?

Instead of using the loan for aspects like routine operating expenses that don’t generate much revenue, owners should consider putting the borrowed money into parts of the business that will generate more revenue and help reduce future borrowing needs.

How much do I need?

Before making requests of the bank, try to make an accurate estimate of how much cash you’ll really need. You can do this by creating a cash flow forecast with projections of your monthly income and expenses.

Are my personal finances in order?

Until a business reaches a substantial size, many banks will rely heavily on the owner’s personal financial statements and credit scores to determine the business’s creditworthiness. This may involve bankers looking at your personal information like student loans, personal credit card debt and mortgage payments.

Do I have adequate documentation for the loan?

When applying for a business loan, you will need a lot of documentation. Requesting a loan when an owner is not fully prepared makes the business look unprofessional.

Do I have adequate cash flow to repay the loan?

When a business owner applies for a loan, their banker will require the owner’s estimated financial projections for the business. It is important for owners to include their debt repayment plan in those projections.

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If you believe the matters discussed above are relevant to your business, please contact Darren Smith of our office to discuss further.


Darren is a Chartered Accountant with extensive experience, including working in the big 4 and medium sized firms before becoming a partner of a city based firm in 2000.

He has gained much experience and has extensive knowledge in providing business and taxation advice, superannuation planning, negotiation of sales and acquisitions of businesses and property development. His client base covers a wide range of industry groups.

Darren works with business owners to grow their businesses and create personal wealth within and outside of their business.


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