Staying in control with small business loans - read this before you apply

By Sara Borman · · 3 min read
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woman applying for a business loan on laptop and getting approved with a thumbs up

If you’re the owner of a small business, chances are that you’re feeling the sting of the rising rates and growth to the cost of living.

With 3 out of 4 small- to medium- enterprises (SMEs) expected to experience cashflow problems before 2024, and business savings accounts being adversely impacted by RBA rate hikes, it’s a tricky time to navigate the market. 

If you’ve been looking into business loans to stay financed, the process can be complex, and more than a little daunting. We checked in with the experts over at ANZ to get you ready to take on the world of business loans.

Things to remember: the four Cs of credit

Business loans can be essential for financing vehicles, purchasing equipment, or investing in growth. Before you’ve started comparing loans, there are a few things that are essential to remember.

“The four Cs of credit [are] a common set of principles that banks and other lenders consider when assessing business loan applications,” says general manager for small business at ANZ, Paul Presland.

These four Cs of credit are:

  • Character
  • Capacity
  • Collateral
  • Capital

You know all about your credit score, but you might not have thought about it. Wondering whether you’re abiding by these four Cs? Here’s the breakdown:

Character

No, this isn’t the personality of your business or the costume it wears (though if you’re planning something like that out, more power to you). The character of a business is actually all about the applicant’s record of repaying debt, their business acumen, credit history, and reputation.

“A lender will assess the background of the business owner/s and their experience. Also considered are the primary activities of the business and the environment they operate within, including time in industry, industry trends and business location,” says Presland.

Remember that if you run a business and are applying for finance on its behalf, your own finances will be checked. Improving your credit will definitely be beneficial for both you and your business.

Capacity

“Capacity is about the ability of a business to repay debt. The lender will assess the borrower’s ability to repay the debt by reviewing several items, including previous bank statements, other loans and understanding the strategy of where you plan on taking your business, and if the business trade is seasonal,” says Presland.

Think of this as your potential to pay back the business loan. That’s in your best interests and the interests of the lender, so make sure to be forthcoming with all of the information that you can give. 

Collateral

Like with personal loans, when we talk about collateral we’re referring to an asset used to secure a loan. With a personal loan this is typically a car or property. In the case of a business loan, this may be somewhat broader: cash, property, accounts receivable, or land are all commonly used.

While collateral isn’t required for a business loan, Presland notes that “it may improve your chances of being approved or help reduce the interest rate you are charged.”

Since you risk your assets being seized if you default on your loan, collateral makes a loan a lot more desirable for a lender - especially when it’s for a larger sum of money.

Capital

When we’re talking about capital, we’re talking about the bottom line. That’s your overall financial position as a business, including:

  • Assets and liabilities
  • Net worth
  • Liquidity
  • Any deposit or borrower’s contribution you are willing to make

I’m ready for a business loan - now what?

Once you’ve got yourself prepared from this side of things and you know your four Cs inside and out, it’s time to really consider what you can afford. Getting in over your head is never a good idea!

There are a range of business loans out there that might suit your needs, so it’s important to examine your options carefully and make sure you find the right one for you.

To get you started, we’ve got a few small business loans listed below that could be of interest. Browse the Mozo database for more business loan options.

Curious about the actual application process? Read our guide to applying for a business loan. Head to our business banking hub for more news and reviews on all things business.

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