Finance plays a very important part in the operation of the business. Not enough funds to enable the business to run, will interfere with the function of the business which could cause decreases of trades in business, or even facing close down simply because business may be no longer sustainable. It is the reason why a cash flow statement is essential in the company as it reflects the business’s financial status. Many businesses have to source finance from third parties like banks to enable it operating smoothly.

 

Legal differences between consumer and commercial loans

Consumer loans must use it for household and domestic purposes – such as renovations or holidays etc. It also can be used to buy residential properties or investment properties. Both borrower and lender of this type of the loan can enjoy the strong protection vested from the law. The law regulates the material to be disclosed, the calculation of the interest rate, enforcement procedure and limitation of default charges.

 

Commercial loans are loans provided to companies and business owners for the purpose of running a business, purchase of goods or services used in the business. In general, the protection over the commercial loan is relatively low. Therefore, this type of loan should be analysed more carefully whether the commercial loan is the best option in your circumstance also, take additional cautions on the terms of the contract.

 

Preparation prior to business loan application

Step 1: Aware of the finances of business

It is always important to know the business financial status. The best way is to prepare a cash flow statement which shows current income, net profit, expenses and future projections.

 

Step 2: Have a business plan

It provides an overview of the financial situation and business goal. This could be handy when it comes to the lenders ask to provide similar documents to check the ability for repayment before lending.

 

 

 

Step 3: Figuring out the financial limits

A business really need to check it’s own abilities for repayment before entering into the finance agreement, otherwise could be in the trap of debts which cannot be escape from.

 

Here are examples of how to work out Step 3:

  • Maximum amount of repayment within your ability.
  • Loan to Value Ratio (LVR)
  • What assets you have to offer if you need collateral.
  • Availability of your possible guarantor if required.

 

Step 4: Choose a loan type for the situation

There are a variety of financial products. This is the most important step in the process because the type of loan will be varied depending on the reason of seeking the finance.

 

Step 5: Prepare documents required

Lenders are most likely asking a business to provide the following:

  1. Proof of identification
  2. Business plan
  3. Main financial reports for the last three years (if available)
  4. Financial forecasts
  5. Ratio calculations
  6. Personal financial information.

 

At Morrison Specter, we have extensive knowledge base and tailored consultation with each business owner, experienced in supporting all facets within the commercial and business sector; providing expert legal services with a personalised approach since inception.