If the thought of working for someone else is unappealing and your dream of owning a shop, providing a service, or spreading your entrepreneurial wings seems like your next move, you aren’t alone
According to research commissioned by the Australian Banking Association, over nine million Australians want to become small business owners.
However, 5.4 million or 60% feel as if they can’t due to a perception of having restricted access to money. 65% of women and 67% of people aged between 18 and 34 believe access to finance is the major stumbling block they must overcome.
In fact, gaining small business finance is easier than ever due to new banking rules and the rise of unsecured business loans.
What are Unsecured business loans?
Unsecured business loans are loans that do not require any collateral. They are used for maintaining cash flow, purchasing long-term assets or replacements (such as IT equipment), and fuelling growth. Some new businesses use these loans as start-up capital or funding.
According to the ABA report, approval for business loans among banks is 94%. This is despite a 33% drop in loan applications since 2014.
How to apply for unsecured business loans?
Approaching lenders for unsecured business loans is simplified compared to personal loans or other types of finance. These loans can range anywhere from $5,000 over six months to $500,000 over five years and beyond.
Most lenders and brokers will assess your eligibility based on how long you have been trading and if your business is profitable.
As a minimum, lenders will require your business to be registered and have been operating between 6 to 18 months.
To prove you are profitable, your lender may ask for bank statements or profit and loss statements. The more information you can provide a lender or broker will strengthen your case for approval.
If you have a monthly turnover of $10,000 a lender will not lend out $100,000 to you. The loan size should be something your business can manage to pay back within the loan term. If your business experiences growth during the loan term, you can apply for more finance so you can get to the next level.
Once you have cleared that eligibility hurdle, they will conduct a comprehensive credit check on your business. You must consent to this, as credit checks can harm your business credit score.
Do you qualify? Chances are, you do
There is a perception that smaller businesses cannot qualify for finance, as only 12% of sole traders and/or partnerships of up to four employees sought business finance in 2017-18.
Over two-thirds of small businesses are sole traders according to the ‘SME Lending In Australia’ Economic Report by the Australian Banking Association. The other third employ fewer than 20 employees. Only 2% of businesses employ over 20 people.
“Even the smallest businesses that are getting off the ground can secure finance,” says Savvy CEO and small business funding expert Bill Tsouvalas. “According to the data, there was an 86% approval rate with 11% in the process of obtaining finance. With interest rates as they are, there is really no better time to strike out on your own and make a go of business.”
Most finance obtained by small business (0-4 employees) were credit cards (40.4%), followed by bank overdrafts (31.2%) and new mortgages (16%).
Remember to consult a financial professional before applying for unsecured business finance.