Business loans enable you to fund your business through outside capital. You can get an instant influx of cash without having to turn over control or shares.
Banks and other financiers let you borrow money and charge you interest. They provide this funding under a clear set of pre-established conditions. It’s stable, reliable, and predictable.
Most business owners will need to secure a loan at some point. But before you apply for a small business loan, you need to understand how to find the right loan or finance option.
This guide is an overview of business loans available in Australia. It goes over core topics related to borrowing options and requirements.
This guide covers:
If you want to know more about finding business loans, speak with one of our lending experts.
Unsecured business loans are provided on the basis of your business’s ability to repay. Lenders evaluate your creditworthiness, financial performance, and future outlook. They factor in credit scores, cash flow, savings, historical analysis, and financial projections.
The health of the business matters most. You don’t have to put any assets on the line; however, lenders do have the right to go after assets and property should you fail to repay.
These loans are granted carefully and come with higher interest rates than secured loans.
Lenders are more reluctant to give unsecured loans to businesses with bad debt, poor credit, a rocky financial history, and less time in operation.
A secured business loan is secured by valuable assets your business signs over as collateral. If you are unable to repay the loan, the lender has the legal right to seize and sell the collateral to recover their money. After the lender has recovered the amount you owe, any remaining funds will be given to you.
If you want to get a secured loan, you must pledge assets of comparable value to the amount you want to borrow. This amount is set at a percentage of the loan and referred to as the loan-to-value ratio.
There’s no set loan-to-value ratio for getting a secured business loan. Lenders want collateral to offset their risk. Your requirements depend on how much you want to borrow and how likely you are to repay.
Your loan collateral assures lenders that they can get their money back whether or not your business performs well. This makes it much less risky for them to loan you money.
Lenders offer these loans under more favourable terms than unsecured. You can access more funding at lower interest rates. You can get a secured loan if you don’t have great credit or cash flow.
The asset collateral is what matters most.
You can use personal or business assets as collateral. Certain assets are more valuable to lenders than others, making it easier to get funded if you sign them over.
Personal Collateral Assets Include:
Business Collateral Assets Include:
Real Estate Equity
Rural, residential, and commercial real estate makes ideal collateral since property retains value over time and can be easily resold.
You can secure the most funding by signing over residential real estate or income-generating properties.
Vehicles & Equipment
Vehicles, machinery, equipment, and even tools can be used as collateral. However, these are depreciating assets that can break down or even go missing. These assets are riskier for lenders.
You can expect to secure less funding with this collateral than with real estate. Lenders will sometimes want to see proof of maintenance and get an independent valuation done.
If you’re still using the assets, lenders may want to evaluate your usage and have you agree to get regular maintenance.
Inventory
You can borrow against the value of inventory. Inventory makes great collateral since it can be sold through the business to generate a profit or sold to recoup losses.
Inventory can be secured through a floating charge.
Accounts Receivables or Debtor Financing
Unpaid invoices are a valuable asset. Lenders will loan against your customers’ debt, usually offering a percentage of the outstanding invoice value.
Floating Charge versus Fixed Charge Collateral
Assets can be secured through floating or fixed charges.
A floating charge, floating lien, or blanket lien is used to turn over several business assets as collateral.
Floating lines can be used to secure inventory. You can also place a blanket lien over a vehicle fleet, tools, equipment, or group of assets.
Fixed charges are used to place individual and identifiable assets as collateral.
Director or Personal Guarantee
A director guarantee pledges the director responsible for repaying the loan if the business fails to. This makes funding possible for businesses without existing assets to sign over.
Cash
You can get a secured loan by using cash savings as collateral.
Secured Business Loan Recap:
Small Business Loans Available in Australia
Australian businesses have many financing vehicles available to them. You can get loans for general use or designated for specific purposes. You can get short-term financing to make it through a cash crunch or a significant influx of cash for longer-term use.
Your financing options include:
A term loan is a secured small business loan option. The capital is provided against the equity you have in residential or commercial real estate.
Who does it suit?
Term loans are ideal for accessing business equity without using up working capital or savings. You can unlock existing property value and keep your savings in reserve.
A term loan is a traditional business loan that lets you borrow a sum of money for a set period of time. Your business can access fairly high amounts of money through a term loan as limits often range from $250,000 to $2,000,000.
You can access this with competitive fixed or variable interest rates. The repayment terms depend on the lender. A flexible lender offers options like interest-only periods or balloon structures.
What can it be used for?
This is a highly versatile business finance solution. The money can be used for a range of purposes, including to fund investments, debt refinancing, debt consolidation, business acquisitions, equipment purchases, and cash flow improvement.
A business line of credit gives you open access to a sum of money that you can draw from as necessary. This business finance solution is considered a revolving loan. You repay what you borrowed and can continue to draw from it. It works like a credit card.
What can a Line of Credit be used for?
A business line of credit is best for cash flow improvement. You can use it to pay suppliers, subcontractors, and certain bills.
Lenders place restrictions on what these funds can be used for. This isn’t the right loan or finance option for paying payroll, taxes, or other debt.
If you need cash flow solutions and working capital, you can combine a line of credit with other small business loans.
What are the requirements to get a business line of credit in Australia?
A line of credit is given based on your monthly cash flow, costs, and other criteria.
You can access this business loan without pledging real estate or other assets as security.
A debt finance loan lends you money against customer invoices. Lenders will provide up to 100% of the invoice value, with quick processing times to get you cash-in-hand when you need it.
These small business loans are given for general use. You can use invoice financing for cash flow improvement, to get working capital, or to finance investments in growth opportunities.
Debt finance loans offer as-needed funding. It’s a conservative and flexible way to finance your business.
Trade finance loans are specialized financing solutions intended to fund supply chain management. You can use the cash as working capital or for cash flow improvement.
This loan is meant to provide stop-gap funding for your business’s trade activities. You can use the money to pay supplier invoices or for import/export expenses.
A trade finance loan is an ideal solution for businesses that need more time to pay their suppliers. Particularly those that go a long time between paying their suppliers and getting paid by customers.
Lenders provide higher loan limits because the money is intended to be used for a specific, profit-generating purpose. Businesses can access anywhere from $250,000 to $10,000,000.
These are short-term loans, with repayment periods of a few months.
Equipment finance is a loan granted to fund equipment and plant acquisitions. An equipment financing loan can be used to borrow against your equipment’s value.
These are specialized business loans. The money can go towards the purchasing cost, along with other acquisition-related costs and expenses.
You can use equipment finance to buy equipment, repay other creditors, consolidate acquisition debts, and fund imports.
An alternative lender can give you up to $2,000,000. The repayment periods range from short-term loans up to a few years.
A low doc loan refers to any business loan that can be obtained with less financial documentation than a traditional one requires. An alternative lender might require a few months of bank statements or proof of customer invoices.
These small business loans can be secured or unsecured. Common options include lines of credit and debt financing.
TLDR
Loan Type
What is it?
What can it be used for?
Term Loan
A term loan is a secured small business loan option. The capital is provided against the equity you have in residential or commercial real estate. A traditional business loan that lets you borrow a sum of money for a set period of time
Fund investments, debt refinancing, debt consolidation, business acquisitions, equipment purchases, and cash flow improvement
Line of Credit
A business line of credit gives you open access to a sum of money that you can draw from as necessary.
line of credit is best for cash flow improvement. You can use it to pay suppliers, subcontractors, and certain bills.
Debtor Finance
A debt finance loan lends you money against customer invoices. Lenders will provide up to 100% of the invoice value, with quick processing times to get you cash-in-hand when you need it.
You can use invoice financing for cash flow improvement, to get working capital, or to finance investments in growth opportunities.
Trade Finance
Trade finance loans are specialized financing solutions intended to fund supply chain management. You can use the cash as working capital or for cash flow improvement.
Businesses that need more time to pay their suppliers. Particularly those that go a long time between paying their suppliers and getting paid by customers.
Equipment Finance
Equipment finance is a loan granted to fund equipment and plant acquisitions. An equipment financing loan can be used to borrow against your equipment’s value, buy equipment, repay other creditors, consolidate acquisition debts, and fund imports.
Low Doc Loan
A low doc loan refers to any business loan that can be obtained with less financial documentation than a traditional one requires.
Loan interest is the cost of borrowing money and is calculated as a percentage of the amount loaned. That might seem straightforward but there are many ways interest can be applied to a loan.
The interest rate terms and conditions you agree to can either save or cost you thousands of dollars. It’s critical to have a clear understanding of how interest works when looking for business loans tailored to your needs.
Here are five terms you need to know:
Fixed Interest Rate Loan
A fixed interest rate loan charges a set interest rate throughout the loan’s entire duration. This keeps the loan’s costs stable.
These loans are easy to budget around. If interest rates are low or about to be raised, it can be advantageous to get a fixed-rate loan.
Pros:
Cons:
Variable Interest Rate Loan
A variable interest rate loan charges interest based on a floating benchmark or index. Business loans in Australia are typically based on the Reserve Bank of Australia’s official cash rate target.
Lenders charge the bank’s floating index interest rate along with a margin – or their spread. You won’t always pay the exact cash rate target percent. But if the bank’s interest rate is raised by 50 basis points, your loan’s interest rate will also go up by the same amount.
Variable-rate loan costs fluctuate along with the benchmark. That’s ideal when interest rates are on the way down. It can be disastrous if you’re locked in while interest rates are rising.
Pros:
Cons:
How Interest Accrues: Simple Interest versus Compounding Interest
Interest can be charged in two ways – simple or compounding. The difference lies in what you are charged interest on.
Simple Interest
Simple interest loans charge interest on the loan’s original amount – or its principal. Your interest fees are based on how much principal remains.
The simple interest loan rate doesn’t represent the true cost of a loan because it doesn’t factor in time. It only tells you how much interest is due on the principal at a single point in time. It doesn’t calculate the costs of repaying interest in an extended repayment period.
A loan that you completely repay at the end of the loan term is much cheaper than one that you repay over a longer period of time.
When you make a payment, the interest due is paid off first with the rest of the funds applied to the principal. Your interest fees decrease as you repay the principal, but the costs still add up over time.
Accurate simple interest loan costs can be calculated as:
You can assess a loan’s full costs through its Annual Percentage Rate.
Compounding Interest
Compounding interest loans charge interest on everything that you owe. Interest accrues on the outstanding principal along with any prior interest that hasn’t been paid off.
Interest compounds according to a set compounding period. It can be yearly, semi-annually, quarterly, monthly, or more frequent than that.
These loans can get expensive fast. You have to pay back the principal along with interest on the principal plus any compounded interest. However, it can be fine for a shorter-term loan.
Annual Percentage Rate or APR
The Annual Percentage Rate or APR shows the full cost of borrowing a loan for an entire year. It includes the interest repaid over time, along with any compounding interest or other fees.
Virtually all loans have fees and borrowing costs separate from the interest rate. The APR is the figure that includes these costs. It will give you a picture of the loan’s true cost.
Lenders sometimes refer to the Simple Interest Rate as the Annual Simple Rate. Don’t get this mixed up with the Annual Percentage Rate, they are completely two different terms. The Annual Simple Rate still hides the full cost of borrowing.
Always know what a loan’s APR is. This will be higher than the loan’s simple or compounding interest rates.
Getting the Best Interest Rate and Terms
You want to get the most advantageous interest rate and terms possible. The interest rate itself isn’t always in your control. That’s primarily up to the economic environment and lender evaluation.
Your first choice is whether to lock in the current rate or go with a floating option. Over time, variable-rate loans have been proven less expensive than fixed-rate loans. If you want a loan with a longer term, a variable interest rate might be the best option.
Choosing between simple versus compounding interest comes down to how fast you can get the debt paid off. A business loan with a more competitive compounding interest rate can save you money, as long you pay it off quickly. Otherwise, a simple interest rate is preferred.
The minimum requirements to get a business loan are to have an operating business, a legitimate reason to borrow money, and the ability to repay.
Lenders have different standards for granting loans. Banks and credit unions usually have the most stringent requirements. Alternate lenders like Moneytech, FinTech companies and financial start-ups show a certain degree of flexibility.
All lenders want to see personal and business documents before providing a loan. This includes general identity and ownership verification documents, along with financial statements. You may need to submit detailed business plans and financial analysis reports.
Always provide the strongest documentation that you can. This improves the chances of getting a loan with good conditions.
Time in Operation
Most banks and private lenders won’t loan to a brand-new business. Your business needs to have been in operation for a certain amount of time.
The required minimum time in operation varies by lender and type of financial solution.
Options for newer businesses include:
If you need to raise money for a brand-new business, you can try to get a secured loan with residential property as collateral. Alternatively, you may need to raise money through equity financing.
Sound Business & Personal Credit Scores
Lenders will use your business and personal credit scores when evaluating whether or not to provide a loan and under what conditions.
Your business’s credit score indicates its financial health and performance. Your personal score shows your individual financial track record and general creditworthiness, which gives clues into how well you manage your affairs.
Australian business credit scores range from a low of 0 to the best score of 1200:
Your business credit score should be at least good and preferably in the very good to excellent range. The same goes for your personal credit.
Higher business and personal credit scores make it easier to get a loan and better financing terms.
Want to get a business loan with bad credit? You still have financing options available.
Some lenders have bad credit business loan programs. Other lenders will weigh bad credit against other factors when deciding whether or not to fund you.
You can compensate for a lower score with great cash flow and a strong recent financial track record. Or you may need to pay higher interest on the loan, make a higher deposit, or get a secured business loan.
A lender can work with you to find the right financing option for bad credit.
Loan Deposit
Business lenders may require you to make a deposit of a certain percentage of the loan value. On the low end, deposits can be as little as 2-3% of the loan value or a few hundred dollars. Higher deposits can range from 10-30%.
Some business loans are available without a deposit. However, you may have to pay an application fee.
Business Plan
You may be asked to provide a business plan with an overview of the business and loan objectives.
Lenders who ask for this are looking for a clear picture of how you will put their money to use and be able to pay them back. They will be analysing your business model, market, and management.
Your business plan needs to convince the lender that funding your business makes good financial sense.
Personal Identification Documents
Lenders need to verify who you are with standard government identification. You might need to verify career or work history details as well.
Business Documentation
Provide general business documents showing ownership records and stakes.
Personal Financial Documents
Lenders typically want to see proof of income and a clear snapshot of your personal finances. This includes bank statements, along with documentation on savings, investments, and assets.
Documentation to show includes:
Provide information on all your sources of income. The stronger your personal finances are, the more lenders will feel comfortable with financing your business.
Business Financial Documentation and Reports
Lenders want to assess the business’s past performance and current financial health. You need to provide financial documents and statements, along with financial reports.
Secured Loan Collateral Documentation
If you want a secured loan, you need to provide complete financial details on the assets you’re putting up.
This includes:
Low Doc Business Loan Requirements
Low doc business loans are available with much less documentation. You still need to provide general business verification documents and personal identification, but lenders are highly flexible on other requirements.
You can get one with just a few months of business statements. If you can’t provide that, a lender can give you a personal case-by-case evaluation.
Australian business loan products come with different maximum limits.
Lenders don’t just hand out the maximum. What you will be offered depends on your intent, creditworthiness, financial performance, and business capabilities.
You might be offered less than you hoped for. You can borrow more by agreeing to higher interest rates, offering collateral, providing a guarantee, or combining loans.
Alternatively, you might be offered more than you need. Make sure to only borrow what you have a legitimate purpose for and understand the loan’s full repayment costs.
A specialized lender can work with you to find business loans tailored to your needs.
Here’s an overview of common business financing needs, along with loans that make a good fit.
Those are general options. You can find business loans tailored to your needs by working with Moneytech – a dedicated Australian small business lender.
Moneytech offers Australian small businesses the loans and financing solutions they need to grow.
Our business finance solutions include general-purpose secured and unsecured business loans, term finance, invoice debt finance, trade finance, and equipment finance.
We provide small business loans with competitive interest rates at limits that go up to $25,000,000. We’re more than just a lender. We’re a growth partner you can rely on.
Reach out to us to find out more about your options.
Q - How long does it take to get approved for a loan?
A - It can take weeks to get a bank to approve your loan application.
Or you can get near-instant approval from an alternative lender with a streamlined online application process.
Moneytech has provided quick funding options in under 72 hours.
Q - Can I get a small business loan in Australia with ATO tax debts?
A - Yes, you can get financing even if you have ATO tax debts. But these debts shouldn’t be out of control. You should already be on a debt repayment plan with a good track record of making those payments.
Make all your ATO tax portal statements available.
Q - How much deposit do I need for a business loan?
A - That depends on what loan you want, how much you’re borrowing, and how risky your borrowing profile is.
You might need to deposit as little as 2.5% all the way up to 30% of the loan.
Q - Can I get a business loan with no money down?
A - Yes, you can get a business loan with no money down when working with an alternative business lender like Moneytech. We’re flexible enough to provide business loans tailored to your needs.
