Best Business Loans in Australia

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    What is a business loan?

    Nowadays, the financing options for small businesses are as varied as the businesses themselves.

    Whether you’re a solo entrepreneur, managing a bustling startup, or steering a thriving enterprise, there’s a high likelihood you’ll encounter moments requiring financial reinforcement. Perhaps you need to bridge a cash flow gap, fuel business growth, or even secure an ongoing credit line for operational fluidity.

    Our guide helps you navigate through the myriad of business financing options, equipping you with the knowledge to make the right decision for your business.

    The average business loan in Australia is around $30,000, but business finance comes in any number of varieties and loans can range anywhere from $5,000 to multi-million dollars. Borrowing terms typically range from one month to ten years.

    To be eligible for a business loan, there are a few basic requirements you’ll need to meet. You should have a registered ABN (Australian Business Number), have been operational for at least six months, and show a monthly turnover of more than $5,000.

    What can my company use a business loan for?

    A standard business loan is multi-purpose and can be used by a business for virtually any reason it deems fit.

    It could be to acquire another business, move into that new office or expand your product offering. Perhaps it’s simply to plug short term gaps in cash flow and pay suppliers.

    More tailored forms of business financing exist too, like fit out finance and business vehicle loans, which are issued to borrowers for a specific use-case.

    A chattel mortgage is a type of business vehicle loan that deserves special mention. To qualify, you only have to use the car for business-related purposes at least 51% of the time.

    What are the main types of business loans?

    • Secured business loans

      This type of loan requires collateral, such as real estate or business equipment, which acts as a security guarantee for the lender. If the business fails to repay the loan, the lender has the right to seize the collateral and sell it to recover the owed money. According to the RBA, 45% of small business loans are residentially secured. A high percentage of other business loans are also secured via commercial property and business assets.

    • Unsecured business loans

      Unsecured business loans do not require any form of collateral, which means there’s less risk for the borrower but more for the lender. Unsecured loans might be more accessible for businesses that do not have significant assets to offer as collateral, but they usually come at an increased cost. These are similar to unsecured personal loans, except that they are intended for business use.

    More options to compare business loans

    Business overdraft A business overdraft gives businesses the flexibility to spend more money than what’s currently in their trading account. You’ll be pre-approved up to a certain overdraft limit and interest is charged only on the amount you’ve actually overdrawn. The facility is directly tied to your account, meaning you can get immediate access to additional funds, when you need them.

    Business line of credit A business line of credit works similar to a business overdraft. You gain access to a specific amount of funds on-demand, up to a certain limit. Similarly, you only pay interest on the money you actually borrow, not on the entire available limit. The main difference to an overdraft is that it’s not directly tied to your account. You’ll specify the amount you want to borrow against your line of credit and then the funds are transferred to your business account.

    Business car loans A business car loan refers to any financing solution for a new car, whether that’s for buying or leasing it. These loans can also be used for trucks or other kinds of business vehicles. These loans typically start at $5,000 and offer repayment periods ranging from one to seven years.

    Chattel mortgage A chattel mortgage is a type of secured business loan that sees a movable asset (the chattel) used as security for the loan (mortgage). The lender takes a charge over the chattel until the loan is repaid. One major advantage of a chattel mortgage is it sees you owning the asset outright, once the loan is repaid.

    Low doc business loans Low doc (low documentation) business loans are primarily used by businesses and sole traders who find it challenging to secure traditional business loans due to the lack of required financial statements or supporting documents. As you’re supplying less financial information to the lender, low doc loans tend to have higher interest rates than standard business loans.

    Fit out finance Fit out finance is all about getting the funds you need to transform commercial spaces from the inside out. Whether you’re looking to upgrade office equipment, install a top end restaurant kitchen, or improve your shop window, fit out finance has got you covered.

    Types of business loan interest rates

    • Fixed rate business loans

      A fixed rate business loan sees the interest rate remain unchanged for the entire term of the loan or for a pre-agreed portion of the loan term. According to the RBA, roughly a third of all outstanding small business loans are fixed rate.

    • Variable rate business loans

      A variable rate business loan has a fluctuating interest rate that can move up or down at any time, usually based on an underlying benchmark or market rate. According to the RBA, roughly two thirds of all outstanding small business loans are variable rate.

    • Factor rate business loans

      Factor rates are applied to the total amount of the loan right from the start. This rate is a fixed cost, meaning it remains the same for the duration of the loan. Some alternative lenders use a factor rate instead of an interest rate.

    What should I consider when I compare business loans?

    The points below are the key elements to consider when looking for the ideal business loan.

    • Interest rate: Interest rates are significantly influenced by the assessed risk of the loan. It’s important to seek out the most favourable rates to ensure you’re getting a fair deal for the risk profile of your business and to reduce borrowing costs.

    • Fees and charges: Beyond the loan amount and interest, lenders might impose application fees, establishment fees, service fees, and possibly early repayment or late payment fees. These can significantly affect the total cost of the loan.

    • APR or comparison rate: This combines the interest rate with any fees and charges associated with the loan to more accurately represent its true cost. This rate provides a clearer view of the loan’s cost compared to the interest rate alone. It’s the best way to compare loans from different providers and see how much you’d pay over a standardised period of time, i.e. one year.

    • Loan term: The duration over which the loan will be repaid can significantly impact your cash flow and the total sum you have to pay back. Longer terms usually result in lower monthly payments but increase the total interest paid.

    Business loan features

    When evaluating business loans, consider the additional features a lender may offer. Some features could greatly benefit your business, while others may not be as impactful.

    • Repayment flexibility: Some lenders offer flexible repayment options, such as the ability to choose between daily, weekly or monthly repayments. Some financing options, like a merchant cash advance, inherently see more repaid when your business makes more sales and less repaid when sales are down.
    • Extra repayments: The option to make additional repayments without penalties can significantly reduce the loan term and interest costs. If you have a seasonal business, you might agree upfront to pay more or less in certain times of the year.
    • Line of credit facility: Once you’ve paid back any utilised portion of a line of credit, you can then redraw funds without the need for applying for finance again. Offering greater flexibility for managing cash flow.
    • Ownership vs lease: If you’re financing a new vehicle or piece of equipment, you’ll find various benefits and drawbacks that relate to owning or leasing it. For example, a lease agreement may not see you own the asset at the end of the agreement, but the leasing company may manage the ongoing maintenance and repair costs.

    Application requirements for business loans

    Applying for a business loan requires preparation and the more information you can supply, the more likely you are to be approved and receive preferential loan terms.

    Typically, you’ll need to provide:

    • ABN number: Proof that you have a legitimate Australian business. You may even need to supply business registration documents and any applicable licences or permits.
    • Financial statements: Particularly for bank loans, you’ll need to supply recent financial statements (profit and loss, balance sheet) to demonstrate the financial health of your business.
    • Bank statements: A growing number of online lenders will assess the financial profile of your business from the incomings and outgoings of your company bank accounts. If this is the case, they may not even require financial statements.
    • Business plan: Sometimes, particularly for bank applications, a detailed business plan is required, outlining the purpose of the loan, how it will be used, and how it will contribute to the business.
    • Credit history: The business’s credit report, and possibly a personal credit check of the directors.

    Eligibility for a business loan can vary by lender but generally includes requirements such as:

    • Being a registered business, operating for a certain minimum period (e.g. at least 6 months, and some lenders even specify 2 years)
    • Meeting minimum monthly or annual revenue thresholds
    • Having a good business credit score and, in some cases, a good personal credit score for the owners

    Business loans FAQ

    Can my company get a business loan with bad credit?
    Yes, companies with bad credit can still obtain business loans, but they might face higher interest rates due to the perceived level of risk. Alternative lenders often provide more flexibility in assessing creditworthiness, accommodating businesses that may not qualify for conventional bank loans.
    Why are business loan applications declined?
    Business loan applications can be denied for a number of reasons. Perhaps your business finances are not sufficient for the amount of finance you’re seeking, or perhaps your personal or business credit score falls below the required levels of the lender. Wider industry and economic factors could prohibit you from getting your business loan approved too.
    How much deposit do I need for a business loan?
    Most business loans do not require a deposit. However, it’s more common to provide a deposit when applying for real estate loans, business car loans and wider asset financing. A deposit can sometimes correspond to cheaper interest rates and a higher likelihood of having your business loan approved.
    Can I refinance my business loan?
    Yes, you can refinance your existing business loan, either by taking a new loan from a different lender, or by changing the terms of the existing one. Businesses often refinance to secure a lower interest rate, increase their loan amount, or combine multiple debts into one. However, your loan may come with early termination fees and it’s important to make sure the costs involved in refinancing don’t outweigh the benefits.

    Bottom line for business loans

    A business loan is an excellent resource for helping companies of any size. New assets purchased with business loans can add so much value to the company, that the asset practically pays for itself. However, like with any debt, it’s important to do your homework and be thoughtful about how you’ll use the loan for maximum impact.

    At no obligation to your company, MNY can help connect you to the right business loan for your needs.

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