In the past, a small business loan involved one or two financing options typically offered by a bank. And it was difficult to get approval. But nowadays, you will find small business loans in a variety of forms. They also often differ from the typical business loans offered by the big banks, too.
You can use a small business loan for any qualifying business expense. Whether you want to cover a shortfall or buy new equipment, there is a business loan that will suit your purpose. And over 50% of small businesses in Australia use a loan facility of one type or another. You also don’t always require collateral or security for a business loan. Get help when you need it with the right small business loan type. We’ve summarised the top 10 small business loans.
Do you need fast cash-flow for your business? An unsecured business loan may be the right choice for you if you need ultimate flexibility in your loan. It allows you to cover any business-related expense, whether it’s replacing supplies or equipment, or putting a down payment on a new location.
These loans are ideal for short-term use, usually up to a 24-month period. Loan and interest repayment can be daily, weekly, or monthly. Most importantly, you don’t need collateral to receive this loan.
same day settlement
flexible payment options
approval outcomes are fast
no need for full financials
Sometimes you need to contend with unexpected expenses in your small business. An unsecured business loan can help you weather the storm. It can help boost your working capital so that you can take care of the things you need to. Invest in business-related things like new equipment, renovations, or hiring a new team member. Use an unsecured business loan for new business opportunities or to cover the business’ cash flow ups and downs.
- A simple online application process
- A finance option for smaller businesses that have trouble meeting a bank’s lending requirements
- Security and collateral not required to receive loan approval
- Typically higher borrowing costs with fees, terms and conditions
- Higher interest rates because of the higher risk to the lender
- Possible personal guarantee requirement
As a business owner, sometimes you need access to financing at a moment’s notice. A small business line of credit can do just that for you. Instead of a lump sum like standard business loans, a line of credit can offer your business flexibility as well as peace of mind.
It all starts when you and a lender agree to a specified amount of finance. You can access the line of credit, up to the limit, any time you need it. And most of the time, you only pay interest on the money used – not the available line of credit.
draw down when you need it
no unnecessary interest payments
no need for full financials
A small business line of credit doesn’t have any restrictions. That means that you don’t need to prove that you need the money for a qualifying business expense. Simply use what you need and only pay back what you use. It’s a great way to gain cash flow assurance without going into debt if you don’t use it.
- Very flexible lending option
- No getting tied down by minimum loan requirements
- The application process is fast and simple to complete
- The terms vary depending on the lender
- The lender may cancel it at any time
- May have to pay fees even if you don’t use it
Some small business owners run into a little trouble collecting on invoices. There’s a lending option that can help with that. It’s called invoice factoring.
This small business loan option is a little different than most standard lending options. Instead of applying for a loan outright, business owners sell their unpaid invoices to a lender, known as a factor. Factoring can typically provide you with up to 80% of the invoiced amount immediately.
You don’t receive the full amount of the invoice. However, depending on the arrangement, you can have the lender take on the responsibility of collecting the payment instead of you. This is a great option for small businesses that send out invoices rather than collecting upfront payments should they need cash right away for other business expenses.
typically inside 24-hours
only use when you need
lower secured interest rate
insure against lost payers
Have you ever run into a situation where you had a tax debt due or your machinery broke down? You could afford to pay it, but you’re waiting on payment of a particularly large invoice. You’re left playing the waiting game to take care of your responsibilities. Invoice factoring gives you a way to pay your business expenses before your customers has settled their invoice. Do it without worrying about collecting on invoice payments. Lenders can take it out of your hands and pay you a percentage of the invoice amount owed.
- Immediate cash relief
- Eliminating late or non-payments risks for invoices
- A great option to cover short-term cash flow issues
- You only receive a percentage of the full invoiced amount
- Can be pricier than taking out a small business loan
- May sour client relationships for selling the debt
A merchant cash advance is a good option for small business owners who don’t have a lot of cash flow. With this loan type, lenders collect repayment from your daily sales.
When you receive a merchant cash advance, a lender gives you a lump sum upfront. This “borrowed” amount is yours to use as you see fit for your business. You’re basically borrowing against your future sales.
Repayments are a simple process, too.
To pay it back, you both agree to use a percentage of your daily credit card sales, which your credit card processor will send directly to the lender and the rest to you. Repayments also include any lender fees incurred for the advance.
What can you use your merchant cash advance for? Anything! Did you have to refresh your inventory? Maybe you need more working capital for a new venture? You can do all of these things and more with a merchant cash advance. The great thing about a merchant cash advance is that you don’t have to narrow down how you’re going to use the money. So, if you have a good history of daily sales, it’s a simple way to repay the money you borrowed.
- It’s easy to apply online
- Receive cash within days, in some cases
- Repayments depend on your daily receipts and agreed-to percentage of sales
- Availability limited to businesses that have daily credit card sales
- May require proof of average sales level for up to the past 12 months
- The APR may be as high as 60-200%
- Terms and conditions not regulated by the government
Do you need to upgrade or purchase new equipment for your business? If you know you want to take advantage of an equipment sale, you don’t need to wait. There’s a specific loan option if you want to buy equipment or machinery for your business.
Equipment finance is the best small business loan type for business owners who want new equipment but lack the funds to invest. New machinery is expensive. But using an equipment finance loan can help keep your business on track as well as competitive. It gives you the means to buy the best equipment you need for a profitable future.
Is your equipment outdated? New machinery can make all the difference in how you deliver the final product to your customers. It can improve efficiency and productivity. And it can help you remain competitive in a saturated market. New equipment and machinery are expensive, though. Often, small business owners have to save for a long time to budget for this expense. But if your equipment breaks down or you run across a limited time offer, you need to strike quickly. An equipment finance loan helps you do it when you don’t have the cash on-hand to do it yourself.
- Minimal initial impact with small or no deposit terms
- Flexible repayment plan
- Faster than securing an unsecured bank term loan
- Typically require strong business financials to be approved
- Unable to sell the asset until the loan is paid in full.
- Locked into a fixed contract with early-termination fees
If you’re not in an asset backed position and unable to secure an equipment finance loan hire purchase provides another option. Hire purchase is a medium-term small business loan product. It’s used specifically to buy an asset for your business.
Similar to equipment finance, the lender provides the funds to purchase the asset. However, the lender maintains direct ownership over the asset until such time as the loan is repaid in full. After full repayment, you can choose to purchase the equipment at a reduced price or hand it back to the financier and upgrade to a new machine, that is your preference.
This loan product may be especially appealing for small businesses that want to claim GST credits. You may be able to claim GST included when you buy the new asset.
Hire purchase agreements are an alternative option for equipment finance. Small businesses need to replace or renew their equipment at regular intervals. You may buy new machinery or equipment for a variety of reasons. Maybe the equipment you have is out of date or obsolete. Or, you may need more equipment to ramp up production. Alternatively, you may want to delve into a new branch of your industry. You’ll need the right machinery for that.
- Ownership shifts from the lender to the business owner when the contract ends
- Repayment works around your cash flow and asset life cycle
- Possible GST credits claim for the GST portion of the hire payment
- Typically costs more than standard loan financing
- Ownership doesn’t go to you until the contract ends
- Requires an initial deposit
When a business experiences an influx of orders without the funds to fill them, what can they do? They can get a purchase order funding loan.
It’s like invoice financing except you don’t use an invoice to secure the loan. Instead, you go to a lender with the purchase order in hand. The lender can pay for the expenses related to fulfil the order, including supplier, production, and delivery.
When the customer accepts the order, they’d pay the lender instead of you. When the lender receives that money, they take out their fees and give you the balance.
Sometimes your products take off and you can’t keep up with market demand. There’s no reason why your business should go under because it’s popular. You can use purchase order funding to bridge the gap between supply and demand. You can use this small business loan type for any business purpose. That means you don’t necessarily need to sell products to take advantage of this loan. You can put it towards staff commitments, working capital, and even marketing.
- Leverages an existing purchase order to secure a loan
- Helps newer small businesses that lack the capital to fulfil large orders
- Repayment comes directly from the customer when they pay the purchase order
- Need a specific profit margin to qualify
- Most qualifying companies deal in manufactured goods, not services
- Only works with finished goods
Have you ever wished that your small business loan worked like your mortgage? It can with a business term loan. Instead of short-term fixes, this loan product has a longer fixed term with a secured borrowing facility.
A business term loan does require personal or business assets to secure financing, though, at least in most cases.
These are the types of business loans you may see from the big banks like Commonwealth, Westpac, and ANZ.
Also, unlike other small business loan products, this one is typically for larger purchases and can take some time to gain an approval. So, it’s not the answer if you have a short-term cash flow problem.
If you need to ‘think big’ with some of your small business changes, you may need a loan that matches. A business term loan is for those major purchases that you simply can’t budget for. Do you want to buy out your competitor? Buy a new building for your business? Or how about make expansions to your retail premises? All of these big plans call for a business term loan.
- Set a repayment schedule to match your business’ cash flow
- Term tied to the life of the asset
- May be able to choose between variable and fixed interest rates
- May choose repayment types: interest-only or interest and principle
- Higher interest rates for non-residential assets
- The application process is very long and involved
- Only established businesses may qualify
- Minimum borrowing amounts may apply
Personal loans may be the first thing you think of when you think of loans. Especially if your business is relatively small. These types of loans generally come with a fixed term and variable or fixed interest rates. You have some flexibility when it comes to loan amounts, with a minimum of $5,000 to a typical $40,000 maximum.
Interests rates vary between lenders. But you can expect the rates to be in the range of 7.75% to 19.09% for this type of loan. The personal loans option may be the best choice for businesses that want to buy their equipment and machinery outright. This option allows them to own the new asset without worrying about a lease.
Unlike other business loan products, personal loans are exactly that: personal. That means that you can use the money from this type of loan to finance or purchase anything you want. Do you want to redecorate your break room? Buy a new computer system for the back office? Or maybe you want to redo the place settings in your restaurant? You can do all these things and more with a personal loan.
- Instalment repayment schedule spreads out the cost of the purchase
- Early repayments usually don’t come with a penalty
- Saves money compared to leasing new machinery/equipment
- Your personal credit rating determines the amount and availability
- You’re personally responsible for repayments
- Interest rates are higher than business loans
For smaller expenditures, your first thought may be to put it on your credit card. A business credit card is a little different than your personal one. A business credit card is a separate line of credit that has different bonuses and rewards.
These credit lines generally come with higher credit limits based on your business credit scores. A credit card company may give you anywhere between $2,000 to $100,000 as a line of credit. It also has variable terms and interest rates so it’s in your best interest to shop around for the best offer.
Making major purchases is probably not the best use of a business credit card. So, save buying that expensive new equipment for a different small business loan. This one is best suited to buying consumables like office supplies. Also, it can help you smooth out unexpected cash flow fluctuations. Were you a little short last month and having trouble paying some bills? You can use a business credit card to help until the cash flow irons out.
- It’s simple to buy things for the business
- Source of emergency cash flow when you need it
- Some cards offer interest-free periods
- Possible high-interest rates
- May link to your personal finances
- Fees and charges add up, even if you don’t use it
|Loan Type||Benefits & Suitability|
|Unsecured Business Loan||Facility term 3 – 24 months
Any business purpose
Loans from $5k to $300k
An unsecured business loan is a flexible form of business funding which can be used for any business purpose as required. With approval and settlement often achievable inside the same business day this type of funding proves popular for businesses in need of fast cash-flow.
|Small Business Line of Credit||Facility term (Revolving)
Reduce business stress by keeping funds readily available
Incredibly flexible lending option
A small business line of credit can provide an excellent solution for businesses looking for a cash-flow safety net. Typically you only pay for what you use and have immediate access to business funds when required.
|Invoice Factoring/Finance||Facility terms typically 30/60 days
Unlock cash-flow form your accounts receivable ledger
Reduce the stress of chasing outstanding invoices
Invoice finance can help a business unlock the cash flow sitting in their unpaid invoices providing immediate cash-flow relief.
|Merchant Cash Advance||Short payment terms typically 3/6 months
Payments based on revenue
Supports new business with growth
Perfectly suited to new businesses experience rapid growth. A merchant cash advance can help support a growing business with the cash flow they require to expand and take advantage of opportunities when they are presented.
|Equipment Finance||Facility term up to 60-Months (Revolving)
Flexible repayment terms
Best suited to businesses looking to upgrade or purchase new equipment. Provides an afforable way to make a significant equipment purchase. Typically faster than securing an unsecured term loan.
|Hire Purchase||Flexible facility terms from 3 months to 5+ years
Great option for newer businesses with less financial history
Option to upgrade to new equipment at end of term
Excellent option for newly established business with limited credit history. Hire purhcase provides flexibility with the option to take ownership of an asset at the end of an agreed term (for a fee), or hand the asset back for an upgrade.
|Purchase Order Funding||Facility terms up to 12-months
Short term funding to fulfill orders
Ability to secure a business loan against future sales
Purchase order funding provides a way for a business to ensure their cash-flow keeps up with the growth of their business. A fantastic option for business experience growth working in product supply industires with extended invoice payment terms.
|Business Term Loan||Facility term up to 30-years
Principle and interest only options
Can be more affordable due to longer terms
Suitable for established businesses with strong trading and credit history looking to make a significant purchase within their business.
|Personal Loans||Facility term up to 5-years
Early repayments normally fee free
Fast approval process
Personal loans can provide a quick cash injection to a business with no restrictions on what the funds can be used for. Typically best suited to smaller purchases.
|Business Credit Card||Revolving (ongoing)
Interest free payment terms available
Fast emergency cash-flow when required
A business credit card can be a great option for smaller business purchases. Access funds quickly, when you need them (similar to a business line of credit).
If you have a small or medium-sized business, you need a matching loan product. A small business loan tailors to the unique needs that all small business owners face. But you do need to qualify first.
Generally, you need to be in business for at least 6 months to qualify for a small business loan. You also have to show that you have a minimum monthly revenue. That exact number may change depending on your specific circumstances. But typically, you need to show that your business grosses at least $5,000 per month in revenue.
If you pass both of those qualifications, you will most likely be eligible for a small business loan. And the best part is that if you’re approved you can receive the money the same business day.
Getting a small business loan requires some planning. You’ll need to figure out how much you need and how much you can repay. You don’t want to overextend yourself. Once you figure out how much you can realistically afford to borrow, it’s time to start the application process. You’ll have to make a basic business case for yourself. The application may include questions like:
- Plans for fund usage
- Basic personal details
You’ll also upload supporting documents with your application. Have the following statements on-hand before you start:
- Bank statements
- Recent sales
- Proof of operation
- Proof of turnover
- Personal identification
Depending on the type of loan the requirements will change slightly. However, in many instances all that will be required is photo identification and recent bank statements.
After you submit your application, it will be reviewed promptly. The actual wait time may vary depending on the loan type. During this time, the information provided will be assessed to judge your business’ creditworthiness. Doing so determines your loan eligibility.
Often you will get an immediate response online. However, some business owners may have to wait for a credit team to review their application. When your application receives approval, things happen quickly. You will need to sign a loan agreement, typically electronically. Once returned, you’ll get the funds the same day.
- Inconsistent revenue
- Existing debt or other loans
- Business history is too short
- Weakening industry
- Seasonal business
- Revenue comes from multiple suppliers
- Negative credit history
- High-risk industry
Why is it so difficult to find lenders for start-up companies? The simple answer is that it’s too risky for lenders since a high percentage of startups fail. Sweat equity deals or selling some equity may be another option.
Alternatively, finding a business grant that’s suitable for your needs. As a worst-case scenario, you can also speak to family and friends about a loan or to invest in your business. Finally, you can always go the route of a personal credit card. As many as 25% of all small businesses do this. But keep in mind that it’s not ideal to borrow personal funds to fund your business venture.
Remember, too, that a personal credit card secures against you personally and not your business. However, if you run a new business and need quick access to cash-flow this may be an option for you.
How long is the typical approval process for a small business loan?
The processing time can vary depending on the business loan you’re applying for. If you were to apply for an unsecured business loand or line of credit with Unsecured Finance Australia you can be approved inside the same business day. If you were looking to apply for a more traditional term loan from a bank it could be several weeks before an approval is reached.
Do the loan qualification requirements differ between states?
No, the assessment happens the same way whether you live in NT or WA. Keep in mind, though, that tourist ‘hot spots’ have seasonal income. If that sounds like you, you may see that lenders assess your business differently.
Can I buy an existing business with a business loan?
Are you ready to grow your business? You can do so by buying an existing business. Make sure that you have a solid strategy and are confident that it can add to your current business success. Doing your due diligence can go a long way towards your success. And that includes factoring in costs and estimating revenue potential.
After you do all that, you can apply for a business loan. Keep in mind that lenders still look at the same parameters. That means your current business history, revenue, and expenses, as well as the industry you operate in.
Will I require a deposit to qualify for a small business loan?
You don’t need to put down a deposit for a term loan in Australia. The only time it may be a requirement is if you’re applying for a loan to buy equipment or an existing business.
What are the requirements to be approved for a small business loan?
This will depend on the type of business loan you’re looking to secure. Generally, you need a business history of at least six months. You also need a turnover of $5,000 minimum per month and be able to demonstrate the ability to handle repayments.
What are the typical interest rates on a small business loan?
Unsecured business loans come with higher interest rates than secured loan. But the actual interest rates really depend on how much risk your business presents.
Loans are risk-rated products and higher risk applicants receive higher rates.
For example, if you have over five years of business operation with consistent revenue, you may see lower rates. However, an applicant who’s relatively new to business with inconsistent revenue may pay more.
Is there a difference between a loan from a fintech lender and a bank lender?
Banks traditionally take quite some time to asses loan applications. This is because lending any amount of money adds to their liability and banks are quite caucious with their lending parameters.
On the other hand, fintech lenders are more nimble and want to lend small businesses money. It’s what they’re designed to do.
To facilitate the process, they use technology to analyse a business’ financial health. This allows fintech lenders to make lending decisions quicker than banks.
Is my business eligible for a small business loan?
If you have a trading history of at least six months or more with consistent revenue, you may be eligible for a small business loan. Lenders also look at the industry you operate in.
Also expect your credit history to be checked. A lender wants to make sure that they’re lending to a responsible party. So, make sure that your score and credit history are positive.
Also, if you’re self-employed or a sole trader, you can get a business loan. Small business loans are for everyone who meets the qualifications, regardless of whether you have a staff or not. If you have additional questions, submit an application and talk further with the finance consultant. They can answer any eligibility questions you have.
Is It hard to get a small business loan?
No, the application process is relatively painless and quick. Unsecured Finance Australia just want to make sure that you borrow responsibly. If you meet all the qualifications, you shouldn’t have a problem receiving a loan.
Is there a penalty for paying off my small business loan early?
You can always pay off your loan early. Depending on the type of loan you’ve chosen, you may have to pay extra fees for early payoffs.
If you feel like you may want to do this in the future, make sure to discuss the early payout options when securing your loan.
Why do I need to provide a copy of my business bank statements?
Your business bank statemetns provide insight into your cash flow position. Typically 3-months of bank statements will be reviewed to determine your businesses ability to replay a loan facility.
Looking at your bank statements provides a true picture of your business and provide a snapshot of your immediate profit and loss position.
Can I expand my business with a small business loan?
Funding business growth should be a part of every business owner’s strategy. And using a small business loan can help with that. After all, a lack of funds shouldn’t hold you back from growing your business.
When you apply for a loan for expansion, the finance manager will look at your financials, industry, and business history. They’ll also talk about your intentions so they get a better idea of which products suit your needs.