Business loan guidelines still tell us that the essential ingredients of preparing for a business loan are the old favourites such as getting to know your local bank manager before you need a loan and preparing a detailed business plan. This still applies for certain loans though given the progression in the business loan marketplace with the new online lenders, peer to peer platforms, specialised business loan providers and cloud accounting platforms, the old rulebooks on how to best prepare for a business loan are starting to become obsolete.
The following provides a high level overview on what is needed in today’s market for two business loan types that are changing with technology, unsecured business loans and debtor finance.
Unsecured business loans
The unsecured business loan is perhaps the market that is the furthest from the traditional process of preparing for a business loan. The unsecured business lenders have invested heavily in technology and automated credit decisioning tools to be able to quickly arrive at a lending decision based on black and white historical business data. As such, the information required by these lenders should all be available and easily accessible without having to prepare any additional information.
Information typically needed for unsecured business loans:
- Business bank statements for the last 3-6 month period;
- The most recent full year financial statements (for loans > $50k);
- ATO integrated statement; and
- ID verification on directors.
This information is then processed and assessed very quickly and loan approval often provided within 1 to 2 days. Although the pricing on these loans is significantly higher than your standard bank loan, the quick turnaround on approval and funding and no need for personal assets as security is proving a popular solution with many small businesses.
The debtor finance market has also seen a marked change in what information is required and how loans are assessed, primarily due to the increasing use of cloud accounting platforms by businesses. By accessing and reviewing data within a business’s accounting platform, lenders can quickly obtain a valuable insight in to a business’s performance and debtor history. Again, these lenders have invested heavily in technology to enable an automated assessment of the financial data that allows a quick and informed credit decision.
Information typically needed for such debtor finance facilities:
- Access to a business’s cloud accounting platform (if applicable - financial statements if not);
- ATO integrated statement;
- Sample client contract and invoice;
- ID verification of directors.
A credit decision is typically made within a matter of days and funding made available soon after. In addition to the quick approval turnaround times, technology and integration with cloud accounting platforms is also helping to remove a lot of the administration burden that has historically been associated with debtor finance products.
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