How to apply for a Business Loan with your Business Plan
This Blog explores the more common reasons business loans are rejected by banks. Every year in Australia, 40% of Australian small businesses apply for business loans from a bank. The rejection rate can be as high as 37%.
At Small Business Plans, just under half of the Plans that we write every week are for businesses seeking finance from banks. We also receive referrals from Bank Loan Managers directly when they believe that their Client’s Business Plans are not good enough to get the loan. We even have a few of those Managers as regular Clients for their side-hustle businesses, or family and friends’ businesses. We also work directly for Business Brokers and Finance Brokers who use us because we have a very high success rate. Our Bank Loan Business Plans – at 80% of our Clients get their loans.
Top five reasons why small business loans get rejected
Below average Business Plan.
Banks like companies with well-thought-through strategies for starting a business. By “strategy”, we mean:
- How the Business will operate effectively
- How it will market and develop the Business effectively
- How effective it’s financial management is, and therefore how clear and compelling its financial statements are.
Other issues/mistakes that an amateurish or unprofessional Business Plan would have are:
- Clear business structure – 90% of our Clients struggle with this, and it a good Business Planner will make sure that your structure is really clear, even if at the moment it is a little bit underdeveloped
- Unclear what the funds are going to be used for, specifically
- Missing information, especially the range of insurances
High-risk market
Banks consider some markets very risky.
- Restaurants
- Construction industry
- And a few others, as you will see from the link above.
If the Business approaches the loan systematically and has a compelling Business Plan, these high-risk industries are not a major issue, and certainly not a reason for the loan to be turned down.
Wrong type of loan
There are different types of loans clustered under the two main categories of:
- Secured
- Unsecured
The decision of secured versus unsecured also relates to the size of the amount of money requested and other factors below. During a professional Business Planning process, a good Consultant will make sure that he makes suggestions and recommendations about the type of loan, once the discovery phases of a Business Planning process are complete, and before the Plan is written.
The Business/Client does not ask for enough information
The Bank, and a good Business Planner, will go through your finances in great detail to make sure that the amount of information you are asking for is backed up and credible in the following:
- Profit and loss projections of revenue, expenses, and costs
- Cashflow projections
- Balance Sheets – i.e., what you Business has and has not including cash, assets, and goodwill
Poor credit history
Businesses with high outstanding debt, failure to make timely payments, and high credit utilisation generally will have problems. In these circumstances, we always recommend our Clients go through a Broker and we can help recommend or refer Brokers to our Clients in these circumstances.
Small business Owners who are the main Manager or Owner of their Business may also need to keep their personal credit history up to date and avoid any red flags on a credit history.
Assess the risks
Many Clients have under-developed or missing risk matrices in their Business Planning process or Business Plan. A professional will help with a risk matrix which will help the Bank understand and demonstrate that a Client is aware of the likely challenges that the Business faces and has mitigators (mini-plans) in place to address these. Likewise, the market research and analysis will have identified opportunities and threats and will also have mini-plans in place to address these in the operating section of its Business Plan and its market section of its Business Plan.
How Small Business Plans can help
40% rejection rates can look dauntingly high but the reason that so many people are rejected are stated in the above Blog. Almost 95% of Businesses can avoid these common areas and mistakes and put themselves in a good light for the Bank. Only 5% have genuine issues that cannot be thought through, and remedial or work around activities planned using a solid Business Planning process and professional Advisor, and then producing a compelling Business Plan that is very likely to be funded by a Bank.
If you would like a short chat with one of our Consultants, please contact us on 1300644853 or info@smallbusinessplans.com.au, or scheduling a short chat here.
If you have had your loan rejected, and you do not have a Plan written by Small Business Plans, we can still help. We recommend our one-hour coaching where we review the Plan that you had rejected and let you know whether it can be tweaked and re-submitted or submitted through a Broker with a likelihood of getting financed.