Business lending criteria: 4 questions lenders will ask

Getting a business loan doesn’t have to be anxiety-inducing. The promise of new equipment, redesigned infrastructure, offering new services, or taking on a new client can be incredibly exciting for business owners.

However, before you’re able to improve your business’s bottom line, you’ll need to find the right lender. This can be a daunting process, especially if you’re experiencing it for the first time. The secret? Knowing what a lender will ask you—and coming to the table prepared.

Read on as we dive into 4 questions lenders typically ask, as well as details about your business that you need to know for your application.

What’s in the business loan application form?

As a business owner, the more time you spend on paperwork, the less time you have available for your business—which isn't ideal. Keeping your records organised can massively reduce the amount of time it takes to complete an application when the time comes. So, make sure you’ve got quick and easy access to:

Your business specifics

• Business name
• Business partners (if applicable)
• Financial records and bank statements
• Recent monthly revenue
• Assets and liabilities
• Previous tax returns
• Business plan
• Credit history
• Any outstanding loans (if applicable)
• Revenue, expenditure, and cash flow (or this can also be your salary or income information)
• Future projections

Your personal details

• Name
• Address
• Identification documents (e.g. driver's licence)
• Recent ATO Notice of Assessment

Your asset details

If you’re applying for a secured loan, you will need to provide information about the value and ownership of the asset. This may include a valuation of the asset and other information such as insurance documentation.

The 4 key questions lenders ask

Understanding these questions and what the lender is looking for in your answers will be an absolute game-changer when it comes time to submit your application.

Question 1: What is the purpose of the loan?

If a friend wanted a sizeable sum of money but couldn’t tell you exactly what they planned to spend it on, would you feel comfortable lending it to them?

Lenders want to know how you intend to use the funds. There are a multitude of purposes that lenders will loan against, and these are typically determined by whether a particular activity is likely to add value to the business.

For instance, funding the business owner’s purchase of a new car for personal use is unlikely to generate higher revenue and an increased ability to repay the loan. However, an equipment finance loan for the purchase of a commercial vehicle that will increase the business’ ability to deliver to a new customer segment is likely to generate a lot of value for the business.

There are lots of purposes lenders will loan against, including:

• Purchasing new equipment
• Refurbishing premises
• Paying invoices and/or salaries
• Buying a new property

Most lenders will require you to have documentation, such as a contract of sale or construction plans/approval, to support your application.

Question 2: Tell me about your business

Lenders analyse lots of information when determining how much they are willing to lend to a business. In order to assess risk and serviceability, they want to know as much about your business as they possibly can.

Be prepared to answer questions like:

• How long has your business been operating?
• What is your average monthly revenue?
• Have you ever defaulted on a loan?
• What industry is your business in?
• What amount are you looking for?
• How quickly do you need the funds?

It can be tempting to give quick answers to these questions, but for a successful application, it’s important to take some time.

Try to visualise the application as a black and white image of your business. While it does the job, it isn’t as appealing as it could be. Imagine what would happen if you added colour to the image. The more colour you add, the clearer your vision for the business becomes. The more vivid the imagery, the more appealing your application is to a lender because they can clearly see how passionate you are and why the funds are imperative for your growth and expansion.

Question 3: Do you want a secured or unsecured loan?

A secured loan requires an asset as collateral, typically a property, car, or piece of equipment. Secured loans offer lower interest rates and a longer timeframe for repayments; however, a lender may seize the asset if you default.

An unsecured loan does not require an asset. Unsecured loans are ideal for quick, short-term finance, but they typically attract higher interest rates.

Question 4: Do you want a fixed or variable interest rate?

Fixed rates are locked in for a specified period of time, making it easy to plan your repayments. Variable rates can fluctuate, meaning that a drop in interest rates would reduce your repayments, but the reverse is true, too.

It can be difficult to know which is more conducive to lower repayments overall because interest rates tend to fluctuate and can be unpredictable. Be sure to consult your accountant or trusted business advisor when making this decision.

In a nutshell

As described above, there are 4 key questions to keep in mind when preparing to make a loan application. The lender is likely to ask the following:

• What is the purpose of the loan?
• Tell me about your business
• Do you want a secured or unsecured loan?
• Do you want a fixed or variable interest rate?

Getting a business loan doesn’t need to be complicated, and having the right information ready-to-go will make the experience a lot less stressful.

If you want an extra helping hand, get in touch with our lending experts on 1300 780 568 or check out our free loan finder. With it, you can instantly see your loan matches and find the right lender for your needs.

With 100+ years of combined experience in business finance, access to 90+ lenders, and cutting-edge tech, our lending experts have the tools and knowledge to get you the most competitive rate and best-suited product.