Quick answer
Lenders look for five things in a business loan application: evidence the business can afford the repayments from its cash flow, a clean record of paying debts and the ATO, security or other backing if things go wrong, enough of the owner's own money and commitment in the business, and a clear, sensible purpose with a believable way of repaying. How much weight each gets depends on the lender type.
Key points
- Cash flow comes first for almost every lender: can this business pay us back from what it earns?
- Conduct counts as much as size: dishonours, ATO arrears and recent credit enquiries often decide borderline files
- Security doesn't fix weak cash flow for a bank, but it can for a private lender
- A believable purpose and exit make the assessor's job easy; a vague one makes it hard
- A half-page cover note that explains anything unusual can turn a decline into an approval
Picture the person who opens your application. They might be a credit analyst at a bank, a credit officer at a fintech in Sydney, or a private lender reading a property valuation. They have a policy manual, a queue of other files and one underlying worry: if we lend this money, will we get it back without a fight?
Everything they look at is a way of answering that worry. Once you see your application through their eyes, it becomes obvious what to strengthen, what to explain and what not to bother with.
This guide is about what’s being weighed. For the step-by-step mechanics of how a file moves from submission to settlement, see how business loan assessment works. For the hard minimums that decide whether you can apply at all, see business loan eligibility explained.
The five things every assessor weighs
Credit people have used some version of the “five Cs” for decades. What matters is the question each label stands for, so here they are in plain terms, with the Australian evidence that answers each.
| What they’re asking | The usual name | What answers it |
|---|---|---|
| Can the business afford this repayment? | Capacity | Bank statements, BAS, P&L, existing loan repayments |
| Does this owner pay what they owe? | Character | Credit files, ATO account, account conduct, past loans |
| What do we fall back on if it goes wrong? | Collateral | Property, equipment, receivables, guarantees |
| How much of the owner’s own money is at stake? | Capital | Equity in the business, deposit, retained profits |
| Does the purpose and timing make sense? | Conditions | Purpose, industry, economic outlook, the exit plan |
Different lenders lean on different rows. A bank wants all five to be strong. A fintech leans hard on capacity and character from your bank data. A private lender leans on collateral and the exit. Knowing which lender you’re facing tells you which row deserves your effort.
Capacity: the surplus, not the turnover
Owners often lead with turnover. Assessors look past it to the surplus: what’s left each month after the business has paid its costs and existing debts. A $2m business that clears $8k a month has less room than a $700k business that clears $15k.
Banks and many non-banks express this as a debt service coverage ratio: the earnings available to service debt, divided by all the debt repayments including the new one. Many lenders want that figure comfortably above one, often with a buffer of a quarter or more, so that a soft patch doesn’t mean a missed payment. You can test your own with the DSCR calculator.
Fintech lenders get to a similar answer by a different road. They connect to your bank account and read the pattern of deposits and withdrawals over six to twelve months: average monthly inflows, the lowest balance, the number of negative days. A steady, boring account is the best capacity evidence there is. The detail is in our guide to how lenders read your bank statements.
Why “profit on paper” isn’t enough
A business can show a profit while its account is empty, because customers haven’t paid, stock is sitting on shelves or the owner has drawn the cash out. Lenders lend against cash, so they’ll compare your stated profit to what actually flowed through the account. When the two disagree, they believe the account. If your accounts understate earnings because of depreciation or one-off costs, an add-back schedule from your accountant can bridge the gap.
Character: how you’ve handled money before
This is where small things carry outsized weight.
Credit files. Lenders check the business’s file and, because directors usually guarantee small business loans, each director’s personal file. Per the OAIC, both defaults and enquiries remain visible for five years. A default you settled back in 2022, explained in a sentence, rarely sinks an application. An unpaid one from last month usually does.
Recent enquiries. Six credit enquiries in the past two months tell a story the owner probably didn’t intend: that other lenders have looked and passed. If that’s already your situation, read business loans with too many credit enquiries.
The ATO. Assessors almost always ask what’s owed to the tax office. A debt on an instalment arrangement that’s being paid on time is often fine. Under the ATO’s disclosure rules, once $100k or more has been overdue past the 90-day mark and the business hasn’t engaged with the tax office about it, the debt may be passed to the bureaus, and then it appears on the business’s file for every lender to see. Lenders that work with tax debt are listed under ATO tax debt business loans.
Account conduct. Dishonoured direct debits are the single most common conduct flag. One or two over six months, explained, are survivable. A pattern suggests the business routinely runs out of money before the end of the week. Our page on dishonours on your bank statements covers how to handle them.
Collateral: what backs the loan
Security changes the conversation, but not in the way some owners expect.
For a bank, security is a safety net, not a substitute. A bank will rarely lend to a business that can’t show it can service the debt, however much property sits behind it. Security mainly affects how much the bank will lend and on what terms.
For a non-bank or private lender, security can carry more of the weight. A private lender advancing a short-term loan against a property with plenty of equity will focus on the loan-to-value ratio and on how the loan gets repaid, and may be more relaxed about an imperfect credit history.
For unsecured lending, the backing is a personal guarantee from the directors, often combined with a general security agreement over business assets. That’s why your personal position matters even when no property is offered.
Capital: your own skin in the game
Lenders are more comfortable when the owner has put their own money in and would lose it too if things went wrong. Evidence includes a deposit toward an equipment purchase, retained profits left in the business rather than drawn out, or equity in a property being bought.
For start-ups and business purchases this row matters most. A lender funding most of a business acquisition with little owner contribution is taking almost all the risk, and will price or decline accordingly.
Conditions: purpose, industry and the exit
The final row is about whether the story hangs together.
- Purpose. “Buying a second refrigerated van to service a newly signed supermarket distribution contract” reads very differently from “general working capital”. Specific is better.
- Industry. Every lender has industries it likes and some it avoids. Construction, hospitality and transport are viewed differently from medical or professional services. Being declined by one lender for your industry says little about the next.
- Exit. For short loans especially, how will this be repaid? A confirmed contract payment, a property sale, a refinance to a cheaper lender? What assessors will and won’t accept as an exit is set out in what is a good exit strategy for a short-term loan.
Want to know which lenders are likely to look kindly on your file? A quick enquiry gets you a person’s view, and it leaves your credit history as it was.
The red flags assessors spot in minutes
Experienced assessors scan for a handful of signals before they read anything in depth.
| What they see | What they think | What helps |
|---|---|---|
| Repayments to three online lenders | Loan stacking; cash under pressure | Disclose all facilities and the plan to consolidate |
| Regular gambling transactions | Owner behaviour risk | Keep personal spending out of business accounts |
| Large round-sum deposits | Could be loans or transfers, not sales | A short note on what each was |
| Turnover on the form higher than statements show | Overstatement | Use figures straight from your statements or BAS |
| Super paid irregularly | Possible unpaid super | Pay on payday, as now required |
| Application for an amount with no clear purpose | Hidden problem | Tie every dollar to a quote, invoice or plan |
How banks, fintechs and private lenders weigh things differently
Here’s a simplified view of where each kind of lender puts its emphasis.
| Lender type | Leans most on | Less fussed about |
|---|---|---|
| Bank | Capacity from financials, character, security | Speed |
| Non-bank | Capacity (often low doc), security | Minor credit blemishes, recent tax lodgement delays |
| Fintech | Capacity and conduct from bank data | Formal financials for smaller loans |
| Private lender | Collateral and exit | Credit history and trading length |
That table also explains why a decline is rarely the end. A bank that said no because the latest financials are a year old may be one route; a non-bank happy with bank statements is another. If you’ve heard no recently, our guide on why business loans get declined is a good next read.
Banks bound by the Banking Code of Practice commit to telling a small business customer the general reason for a decline, unless it’s reasonable not to. Ask for it. That reason is the most useful piece of information you’ll get for your next application.
Write a half-page cover note
Most applications don’t come with one, and that’s a missed opportunity. Five short paragraphs:
- Who you are: the business, its structure, how long it’s traded and what it does.
- What you need and why: the exact amount and what it buys.
- How it gets repaid: from monthly cash flow, a contract payment or a sale.
- The awkward bits, explained: the ATO plan, the default from 2023, the quiet quarter after the flood.
- What’s attached: a list of the documents in the file.
An assessor who reads that note first approaches the rest of the file looking for confirmation, not problems.
A worked example
Here’s an illustration. A Wollongong signage company applies for $95k to buy a large-format printer. Its statements show two dishonours in March and a $40k ATO balance.
Without a note, the assessor sees a stretched business with a tax problem. With a note, the assessor reads that the March dishonours happened when a council client paid six weeks late (and has since paid), that the ATO balance is on an instalment plan with every payment met, and that the printer replaces outsourced work currently costing $4,200 a month. The same facts, framed and evidenced, describe a business making a sensible investment.
Put your best file in front of the right assessor
Understanding the assessor’s checklist gets you partway. Finishing the job means choosing a lender whose emphasis suits your strengths: a bank if your financials shine, a fintech if your account conduct is spotless, a private lender if property is your strong suit. That matching is our day job.
The enquiry form is a minute or so of typing, and you can relax about your credit rating: lodging it doesn’t trigger any check. We don’t circulate your details to dozens of funders, so your inbox and phone stay calm. A member of our team reads your circumstances and calls you personally. Please be precise about turnover, debts and the purpose, since an accurate picture is how we land on the right lender at the first attempt.
Frequently asked questions
What is the most important thing lenders look at?
For most business lenders, it's the ability to repay from cash flow: steady deposits, enough surplus after existing commitments, and no sign of the account running dry. Private lenders lending against property are the main exception; they focus more on the security and the exit.
Do lenders look at my personal credit for a business loan?
Yes, nearly always. Small business loans usually need a personal guarantee from the directors, so lenders check each director's personal credit file as well as any business credit file. A default or bankruptcy on a director's file affects the business application.
What are red flags on business bank statements?
Dishonoured payments, regular gambling transactions, frequent overdrawn days, repayments to several online lenders at once, and large deposits that don't look like trading income. None automatically means a decline, but each will prompt a question, so explain them before you're asked.
Does an ATO debt stop me getting a business loan?
Not necessarily. Lenders want to know the amount, whether it's on a payment plan and whether the plan is being met. A managed debt is often acceptable, especially to non-bank lenders. An unmanaged debt of $100k or more overdue beyond 90 days can be reported to credit bureaus, which is harder to work around.
Why would a lender decline a profitable business?
Common reasons include too much existing debt, a short trading history, a director's credit problems, an industry the lender avoids, poor account conduct or a purpose the lender doesn't fund. Profit on paper doesn't always mean cash in the account, and lenders lend against cash.