How to apply for a business loan

business.gov.au lists showing your financial position to banks and other lenders among the benefits of keeping good records. A lender will read your reports closely, so get the books current before you produce anything:

• reconcile every bank, credit card and existing loan account to its latest statement
• enter all customer invoices and supplier bills up to the same date
• check the lists of unpaid invoices and unpaid bills against the balances in the books
• check owner contributions, drawings, distributions and loans are classified correctly; distinguish them from genuine business income and expenses, and confirm unclear company transactions with your accountant
• look over the profit and loss statement and balance sheet for anything you can't explain.

business.gov.au suggests having a basic understanding of the business's income, expenses, debts and cash flow before you apply. It sees a cash flow statement as a useful summary of the money moving in and out, and suggests a cash flow forecast of future sales and costs for a business that is just starting.

Use those figures to decide how much you need and to check you can repay it. business.gov.au suggests working out:

• the largest repayment you can afford
• whether you need all the money at the start or would rather draw on it only when needed
• which assets you could offer as collateral, if the lender asks for it
• who would act as guarantor, if the lender needs one.

An average month can hide a quiet one, so run the same test on the leanest months in the forecast too. If you need help understanding your finances or how much you can borrow, business.gov.au suggests talking to your accountant or a business adviser.

business.gov.au notes that loans vary in the amount you can borrow, the loan term, the interest rate and whether it is fixed or variable, and their set-up costs and ongoing fees. business.gov.au describes a secured loan as one backed by collateral, such as property or business inventory, and says that for an unsecured loan the lender usually looks at the business's financial health instead. It describes these other forms of finance:

Before applying, business.gov.au suggests reading each loan's terms and conditions for its charges, interest rates, loan amounts, terms, security and any other conditions. Its funding guidance adds that you should understand exactly what you are signing up for, and suggests getting advice from your accountant or a business adviser.

business.gov.au says requirements vary between loans, but you may be asked for proof of identity, your business plan, financial reports including cash flow statements, financial forecasts, lease agreements and your personal financial information. Lenders usually want to see a business plan, business.gov.au notes, so bring yours up to date with your latest goals and financial information, and check it carries the same figures as the reports.

From the books, that usually means:

• profit and loss statements for recent periods
• a balance sheet at a recent date
• a cash flow statement, and a forecast with every estimate labelled as an estimate
• lists of unpaid customer invoices and unpaid supplier bills
• a list of existing debts, with balances and repayments
• recent bank statements.

business.gov.au suggests presenting them together as a tidy report, so the lender gets an overview of your finances.

Once you have picked a lender, business.gov.au suggests making sure it is legitimate: search for its name or ABN on the ASIC register, check the list of companies not to deal with that business.gov.au links to, and read online reviews.

It warns that scammers target businesses by claiming they are eligible for, or already approved for, a loan they never applied for. business.gov.au says real lenders don't do this, and that such a call or email can be reported to ScamWatch.

If you use a business loan broker, business.gov.au notes that brokers don't lend money themselves, and that some charge for their services while others are paid a commission by the lender.

Follow the lender's process and leave nothing out. Depending on the lender, the loan type and the amount, there may be a loan interview. business.gov.au suggests bringing your accountant or a business adviser if you aren't confident answering financial questions, and using the interview to ask the lender your own questions.

If the application isn't successful, business.gov.au suggests asking the lender for feedback and working on what you can change before you apply again. If it is approved, set the loan up in your books as soon as the money arrives.