Small business loan approval sits at 70%: How to apply for yours today

By Katherine O'Chee ·

Despite COVID-19 slowing down activity in many industries, the business loans market has remained busy throughout 2020. For over 250 days now, Australian banks have approved more than 500 loan applications from small-to-medium enterprises (SMEs) a day. 

This is according to the latest data from the Australian Banking Association (ABA), which shows a whopping total of $41 billion has been lent out to SMEs and sole traders between 1 February and 7 October. 

ABA’s chief executive, Anna Bligh said that with the loan approval rate sitting at 70%, it’s clear Australian banks haven’t left struggling small businesses behind. 

“Australian banks are continuing to provide a lifeline to small and medium businesses across the country. The rate of lending has held up strongly despite the pandemic,” she said. 

“The banks’ commitment to small business has been supported by a number of Government and regulatory measures, including the RBA’s Term Funding Facility, changes to business lending rules, the instant asset write-off, and the SME loan guarantee.”

These figures come after the federal government announced plans last month to scrap ‘responsible lending’ laws in order to further reduce red tape around accessing credit. 

The proposed shift from the current practice of “lender beware” to a “borrower responsibility” principle would essentially allow lenders to rely on the income and expense information provided by borrowers, helping to speed up the loan approval process. 

Australian Small Business and Family Enterprise Ombudsman, Kate Carnell said she supported the proposal as a step towards loosening unrealistic serviceability rules for small businesses. 

“We are aware of small businesses that have been asked for all sorts of documentation by the banks - even for loans that have been 50 percent guaranteed by the Federal Government - including director guarantees, which really means the family home. It’s no wonder small businesses owners are reluctant to borrow,” she said. 

“Importantly the banks will still be accountable to ASIC [Australian Securities and Information Commission] and the Government has pledged greater protections for vulnerable borrowers.”

Things to consider before applying for a business loan

In the meantime, if you’re looking for ways to boost your chances of getting approved while also making sure you don’t take on too much debt, there are a few questions to ask yourself first:

  • Do I meet the lender’s requirements? As part of their eligibility criteria, many lenders require their business customers to have a minimum annual turnover (which could be as high as $500k or $1 million) and a minimum time trading (which could range between 6 months up to 2 years). And like any other loan, they’ll also assess your business and personal credit history, so avoiding overdraws, minimising debt and making timely repayments would all be good habits to maintain in the months prior to applying.
  • Do I have a sound business plan? Lenders also want to know about your financial goals as a business and what you intend to do with the loan. Chances are they’ll ask to see a business plan to help them determine whether your business can afford its repayments in the long run, so preparing one in advance will save you the stress and trouble later on.
  • Is my lender part of the SME Loan Guarantee Scheme? Under the second phase of this scheme, which runs until 30 June 2020, the government is guaranteeing half of all five-year unsecured loans of up to $1 million from eligible lenders. This means that if your lender is participating in the scheme, securing extra finance should be easier.
  • Will the loan fit with my budget? Even if you tick all of the lender’s boxes, check for yourself that your budget can comfortably handle the new loan. That means doing the maths on how much you’re looking to borrow and how much you’ll need to repay, and devising a clear repayment plan to integrate into your budget.
  • Will the loan type suit my cashflow? When it comes to business finance, there’s no such thing as a ‘one size fits all’ solution, so it’s important to pick your loan based on your specific business needs and structure. For instance, while a standard term loan could be good if you already know how much you need upfront, a line of credit may be a better fit for erratic cashflows, as it allows you to access those funds (up to a limit) only when needed. Or if it’s unpaid business invoices that are tying up your cashflow, maybe you’d want to consider invoice finance instead.

For more handy tips, read our guide on business loan applications

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Page last updated November 28, 2020

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Katherine O'Chee
Money writer

Katherine O’Chee is Mozo’s international money transfer and forex expert and business banking writer. She keeps Mozo’s readers on top of the latest news and writes in-depth features to inform and help Australians make smarter financial decisions. Her work has been published in major media outlets including Sydney Morning Herald, SBS News and Bangkok Post. She has a Bachelor of Arts (Media and Communications) from the University of Sydney.