Applying for a small business loan can be a stressful undertaking. All too often, applicants have a negative attitude caused by different stories that relate disappointment and frustration to the experience. But being one of Australia’s links to leading commercial loan brokers, we at CommercialLoans.com.au know that these dark clouds are not quite as dark as the taletellers would have you believe.
It’s true that there are some challenges in securing necessary funding. However, the idea that a small business loan is next to impossible to get is far off the mark. In fact, according to the Australian Bankers’ Association, 89% of small businesses said that they did not see access to finance or the capacity to finance further growth in their business as an issue. There are other sources too, like the expert commercial lending brokers and independent lending institutions that are around to help.
The only problem is that many people share urban myths they have heard on the grapevine. This incorrectly paints a morbid picture for business enterprises in need of capital injections whether for small or large sums. So, in this article, we have decided to fill you in on the facts. We hope that this information will debunk a few of the most prevalent beliefs that actually hit pretty wide of the mark.
5 Common Misconceptions
- Getting a Loan is Really Difficult – There is a general belief that banks are reluctant to grant loans. The financial crisis from 2008 is chiefly pointed to as the reason. But this is 2015 and times have changed. The fact is that most small business loans area lot more accessible than Australians think, a move that is designed to encourage economic growth.
According to figures released by the Australian Bureau of Statistics, the value of commercial loans rose by 2% between February and March this year, from just shy of $43 million to $43.86 million. A report from the Australia Bankers Association (ABA) on small businesses lending trends revealed that in the year ending March 2014, some 362,590 new small business loans (under $2 million in value) had been granted. That represented a growth of 9.3% (30,765 loans) over the previous 12 months, and the fastest growth rate in 3 years.
So, this goes to show that lenders are lending. However, to secure your own business financing you need to have your application in proper order. It is estimated that 80% of small business applications are accepted by banks.
- Perfect Credit Rating or Nothing – This myth has long been something people have pointed to as a principal hurdle to a business loan. But you have to look at it logically. With so many elements existing that can damage a credit rating, very few businesses have absolutely perfect credit ratings. So, lenders would have very few businesses to lend to. That does not benefit anyone.
Potentially, your local bank manager might grimace at your application. But the fact is that dealing the applications from businesses with bad credit history is par for the course in the lending game. And with so many alternative lending sources out there, the vast majority of whom are more than willing to grant applicants a second chance. Therefore, the traditional institutional viewpoint should not put you off.
There are some factors that low credit applicants need to accept. These include higher interest rates and (possibly) limits on the funds made available. These however should not be debilitating. Issues like the recent business performance, the industry type, the applicant’s time in business, and the cash flow trends all have a greater influence on a decision than a low credit rating.
- Banks are the Only Viable Lending Source – This is actually not true. While some business owners are a little nervous about using alternative lenders, there are a lot of advantages in doing so. Yes, traditional lending institutions have been the core source of small business loans for decades. But the terms are not always ideally suited to modern funding demands from today’s small enterprises. Research suggests that smaller businesses pay moreon averagefor debt than both households and larger businesses. This is in terms of both interest rates and product fees.
In comparisona broker is more likely to agree to more practical terms. This is in order to lessen the financial pressure the borrower is under. The trend towards non-traditional lending institutions has been growing for more than a decade. According to figures published in 2007, 17.4% of all business funding was being secured through brokers. This is a massive increase from the 6% that opted for that rout in 2002, while 64% of micro and small businesses went through brokers.
- Banks are the Worst Lending Source – This is not exactly true either. Having a positive existing relationship with your bank can reap some benefits. This is true especially if your business is well established and has a good credit history. While this advantage is not going to guarantee everything you hope for, the terms may suit your business’s particular needs. This is where shopping around is important. The only way to know which decision is the right one.
The good news is that banks are open for business. With banks approving $79.2 billion in new loans of under $2 million to businesses in the year ending March 2014, a 10% increase from the previous year. And besides, the recent decision by the Reserve Bank of Australia to cut interest rates and the banks’ agreeing to pass on that cut to borrowers means that bank loans are that bit more affordable now.
- A Business Plan is Everything – Actually, the jury is still out on whether or not this is as true today as it was years ago. There is no doubt that having your homework done is an important part of applying for a small business loan. But whereas the business plan (complete with market analysis, projections and executive summaries) is proof of this, it cannot offer any guarantees. Some lenders believe they are outdated in a time when how business is done has changed so dramatically. However, no-one is saying that having a business plan is a bad idea.
For more details on business financing, it is worth checking out Business.gov.au. This site offers a lot of info on the options out there and the pitfalls to look out for.
Small Business Loans from Commercial Loans
Helping SMEs to secure funding for their futures is something that we at Commercial Loans are proud to do. Our reputation as one of Australia’s links to top loan brokerages is built on our knowledge of the financial sector and where it is best to secure the small business loans that these enterprises require. We are also fully knowledgeable the on terms that suit their individual needs.
Of course, there can be many reasons why a business may be in need of some extra capital. We have successfully secured many types of business loan for a wide range of purposes, including:
- Lending up to 80% of the property’s value or 100% with additional security;
- Create working capital;
- Expand operations;
- Purchasing new machinery or equipment;
- Purchase of real estate, both commercial and residential;
- Leasehold improvements
We are your bridge to Australia’s top commercial loan brokers. To find out more about the available business loan options, contact one of our financial experts either via our online enquiry form at www.commercialloans.com.au or by calling us on 1300 169 200.
