What business lenders actually look at

Business lending in Australia is not assessed against one shared rulebook. Each lender sets its own criteria, weights them its own way, and changes them as its appetite changes. A business declined by one can be perfectly acceptable to another in the same week, for reasons that have nothing to do with how well it is run.

This is the single most useful thing to understand before you start. A decline is information about the fit between your business and that lender's current criteria. It is not a verdict on the business.

Most lenders want to know how long the business has been trading, and they generally measure it from the ABN currently in use rather than from when you started doing the work. Restructuring from a sole trader to a company resets that clock in the lender's eyes even though nothing changed about your experience or your customers.

If you are planning a restructure and think you may need finance, it is worth understanding that effect before you do it rather than after.

Lenders look at more than the annual total. A business turning over the same amount in steady weekly takings presents very differently from one with a few large payments a year, because the second has longer stretches with nothing coming in.

Many lenders now assess recent bank transaction data rather than waiting for year-end statements. That is often what makes options available to a younger business, and it means the last several months of trading can matter more than the last financial year.

Both the business and its directors are usually looked at. What matters is rarely a single score but the detail underneath it: what the issue was, how large, how recent, and whether it has been resolved.

A paid default from several years ago is generally treated very differently from an unpaid one from last quarter. Recent dishonours and overdrawn accounts carry particular weight, because they speak to the present rather than the past.

Being upfront about this costs you nothing. It will be found during assessment, and a specialist who knows about it from the start can take you to lenders who work with that position rather than to ones who will decline.

Whether the facility is supported by an asset changes the assessment considerably. Equipment and vehicle finance are generally supported by the asset being purchased, which is why they are often available where an unsecured facility is harder.

Property ownership by directors commonly widens the options, though it does not follow that the property has to be used as security. Lenders may treat it as a sign of position rather than requiring a mortgage over it.

Lenders care about purpose, and not only for compliance reasons. Finance that will generate income, such as equipment that lets you take more work, reads differently from finance covering a shortfall with no clear source of repayment.

Being specific helps. A clear account of what the funds do and where repayment comes from is more persuasive than a general request.

What is already committed against the same cash flow matters as much as what you earn. Several facilities taken from different lenders in quick succession is a pattern lenders look for specifically, and it can affect an application even when each individual facility is being met.