Small Business Loan Requirements
Familiarise yourself with the ins and outs of lender requirements for small business loans today.
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Whether you're looking to start your own small business or continue operating your current one, it's common to need access to finance. However, there are certain requirements you'll need to meet, which you can learn more about with Savvy in our comprehensive guide.
What requirements do I need to meet in order to get a small business loan?
There are a variety of requirements that you might need to meet in order to be eligible for a small business loan, which may vary depending on your lender. These requirements can essentially be broken down into two groups: business requirements and administrative requirements. The most common of these include:
Business requirements
| Criterion | Details |
|---|---|
|
Time in operation |
If you are taking out money for your existing business, lenders might require you to have already been in business for a period of six to 12 months. You will need to provide evidence of your operations meeting this threshold in the form of documents such as a business activity or cashflow statement. |
|
Business revenue |
Even if your business has been active for a sufficient amount of time, you will still need to prove that your business generates enough revenue on a per-month basis to cover the cost of your loan. A common threshold for lenders to expect your business to meet is revenue of over $5,000 per month. |
|
Business credit history |
As well as your personal credit history, your business will likely need to have a positive credit score in order to borrow funds as well. This can be achieved by making sure that your business’ bills and debts are paid on full and on time. There are still options available to business whose credit score isn’t as strong, but the loans with the best terms are reserved for those with good credit. |
Administrative requirements
| Criterion | Details |
|---|---|
|
Government ID |
You will need to be able to provide a copy or your government-issued photo ID such as a driver’s license or passport. |
|
Business ID |
Your Australian business or company number (ABN or ACN) will be to be given to your lender, as this is your business’ unique identifier. |
|
Proof of income |
For loans taken out to start a new business, you will need to provide your personal proof of income, such as six months of bank statements or a letter from your accountant. |
How should I compare small business loan requirements?
Your first step in comparing your small business loan options should always be to utilise Savvy’s online comparison tools to get a quick idea of the available options which fit your needs. Next, you will want to look at the following requirements of each of your options and how these fit with your situation.
Loan type
The requirements of your business loan will differ depending on the specific type of business loan that you are applying for. For example, a regular unsecured business loan will generally have less stringent requirements than a secured business loan, for which you will need to provide a suitable asset as collateral to be approved for. In contrast, lines of credit will require businesses to show their lender that they’re capable of paying off higher amounts quickly and intermittently, as they’re granted access to funds up to a set limit and draw from it as they see fit. Invoice finance, another type of business finance which provides businesses credit based on currently-owed revenue, will require you to provide copies of outstanding invoices as a part of your application.
Business activity
For obvious reasons, if a lender requires your business to have been active for a set period of time before you can access credit, this option will not be suitable if you are looking to start a new business. Even if you do have an established business, you will need to ensure that you can provide the necessary proof to meet your lender’s requirement.
Business revenue
If your business is already running and you are accessing further credit to continue its operation, you might find that you will meet certain lenders’ requirements regarding your business’ minimum revenues, but not others. Having multiple types of finance at once could affect how you apply, as lenders will want to see that you’ll be able to manage repayments on your own and could be dissuaded from approving you if your outstanding debt is too great. You will need to make sure that you choose a loan option which can cater to your business’ current circumstances.
Security
Depending on your circumstances, some lenders may mandate that you provide an asset as security for your small business loan. This is most common for loans for new businesses, or for loans taken out to purchase new equipment for a business such as a vehicle or machinery. Assets eligible for use as security include your home or other properties, other commercial properties such as shops or the equipment purchased with your loan.
