Business loans are designed to help you start a new business or franchise, buy an existing business, or make significant improvements to your current business. You must demonstrate to the bank that your business venture will be sustainable and lucrative to qualify for a business loan. You must also have the necessary expertise and skills to run the business and the ability to repay the loan within the specified timeframe.
Documentation Needed for a Business Loan
- Business Sale and Purchase Agreement
- If you are buying an existing business, we need evidence of the business’s finances from the Vendor, a cash flow forecast based on the assumptions, and a business plan.
- If you are starting a new business, we need a cash flow forecast based on the assumptions of a business plan, detailed business model, and source of clients or referrals. If you have experience in the same industry, you will have leniency in obtaining a business loan.
- A copy of the lease agreement is required if the business operates out of commercial premises.
How Much Can I Borrow on a Business Loan?
When a bank provides a business loan, the business typically serves as collateral. In this case, banks will only lend up to 50% of the business’s worth or acquisition price, minus GST. If you require a larger loan, you can provide the bank with other assets as collateral, such as your home or investment property. Banks often lend up to 80% of the asset’s value being offered as collateral in this case.
Repayment/term of business loan
The repayment period for most business loans is five years. If you borrowed money for your business and put up a residential home as Security, the cash secured against this property would be repaid over 30 years at the standard home loan rate. Interest rates on business loans are typically higher than standard home loan rates as banks consider businesses at greater risk security than residential property.