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The Right Way to Apply for a Business Loan

If you prepare and present a strong business case, there's a strong chance that your loan application will be accepted. Here are some ways to maximize your chances of obtaining a business loan.


Be specific about what you want the loan for

First of all, define the purpose of your loan. Do you need a loan to:

  • Buy inventory
  • Expand your business
  • Purchase new premises
  • For a combination of reasons

Write down all the reasons that apply.


Prepare a Business Plan

Before lending money, most banks will want to see a Business Plan. Therefore, if you haven't already done so, make it a priority to research and write a Business Plan. Our free Business Plan template is all you need to start writing your Business Plan today.

If you're a new business, a break-even analysis showing when your business is likely to start making a profit is essential. Our free break-even template contains everything you need to know to crunch the numbers and determine if your business is likely to turn a profit.


Create a sound financial plan

For both new and more established businesses, a sound financial plan needs to form part of the Business Plan. Include the following elements:

  • Financial statements for the past 1-3 years (if your business has been trading for at least a year)
  • Cash flow forecasts for the next 12 months
  • A forecast profit and loss (P&L) statement for the next year of trading
  • A projected balance sheet

Decide how much you need to borrow

Your financial forecasts will help you determine how much money you'll need to borrow and the possibility of repayment. Your Business Plan will also support your application, demonstrating why the money is needed.

Prepare a breakdown of how the money you borrow will be spent and include it in your Business Plan. For example, if you are funding to expand your business, you should detail how much you plan to spend on each of the following areas:

  • Leasing additional office space
  • Purchasing extra office furniture and equipment
  • Hiring new employees
  • Launching and marketing new products or services

Request and check credit reports

At this point, it's a smart idea to request your business' credit report to ensure that all the information it contains is up-to-date and accurate. Review any outstanding debts that are in dispute on a credit agency's books if any, as your bank may pick up on these.

If your business is relatively new, the bank is also likely to request your personal credit reports from the three main consumer credit rating agencies. You should ensure that these are in order too.

Plan how you'll repay the money

Put a repayment plan in place before applying for a loan because banks want to be sure you've thought about how you'll afford to repay them.

Decide how long you'll need to repay the loan and how much your business will be able to repay each month. If you foresee that you'll need to suspend your repayments for a particular period of time for a specific reason, include that in your repayment plan.

Providing a repayment plan will demonstrate that you're serious about repaying the loan and developing your business.


Research your options

You'll have a better chance of being approved for a loan if you can find an option that matches your requirements. For example, if you want to purchase a building, apply for a term loan.

Several different types of loans are available for small businesses, including:

  • Lines of credit – flexible loans designed to cover short-term shortfalls in cash flow
  • Term loans – larger loans that are repaid over a longer period
  • Real estate loans – to fund the purchase or improvement of business premises
  • Small Business Administration (SBA) loans. If you have a small, rapidly growing business, you may be able to apply for an SBA loan. This is provided by a bank but guaranteed by the government

One type of loan may be more suitable for your business than another, so research all of your options thoroughly before applying. A visit with your Small Business Specialist will also help to determine what types of loans are appropriate for your business.

Read about the different types of loans available on Commerce Bank's website before deciding which type of loan would suit your business best at its current stage of development.


Apply for a loan

Now it's time to apply for your business loan. As well as completing the application, you'll be asked to supply certain documents, such as tax returns, bank statements and your Business Plan.

When considering your application, the bank will take into account several factors, including:

  • The viability of your Business Plan
  • The strength of your management team
  • Whether your market or industry is growing, remaining static or declining
  • How likely your business is to repay the loan in full by the end of its term. If your business has other debts or loans, these will be taken into consideration

After applying, you may be invited for a meeting with a Small Business Specialist to further discuss your application. If you present a strong case for your business loan, backed up by hard facts and figures, your application is likely to be accepted.


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