Business Loans

Shaun McGowan Shaun McGowan, CEO "We've made comparising car loans super simple". Apples with apples.
"Super friendly and helpful staff. Very quick and easy process in assisting small business with cash flow"
  Money Tip
How much funding are you looking for?
* Does not impact credit score
Shaun McGowan By Shaun McGowan
If you’re the owner or manager of a small business there are many reasons why you might decide to take out a business loan.

Today I’m going to show you how a business loan can help your business grow to new heights. And of course, we’re going to cover off everything you need to know - including if a business loan is right for you and how to ensure you get the best product suited to your unique needs.

You’re not alone - of the more than two million SMEs (small-to-medium enterprises) in Australia, only 30% have no debt, and around half have a business loan of some sort, other than a credit card.

Business Loans

If credit cards are excluded, just under half of small businesses have a loan facility.

Business Loans

Top reasons why small businesses seek finance:

Buy essential equipment

Boost working capital

Acquire new premises

Buy or upgrade IT systems

Buy and maintain vehicles

Acquire new premises

Refurbish or upgrade premises

Build reputation and brand recognition through marketing and advertising

Expand into a new location

Build a website and establish a social network presence

Purchase extra stock

Hire new staff

Pay bills

Refinance credit card debt

Acquire a competitor

Why Seek Finance

Some of these, such as property purchases or large acquisitions, are major investments or strategic initiatives that will require long-term access to funding. Others are short or medium-term needs which will only require finance for a limited period.

Let’s take a quick look at use cases for long-term and short-term finance.

The most important factor to consider when you’re thinking about applying for a business loan is that the finance option you choose must match the needs of your business.

Long-term finance

Using long-term finance for short-term business needs (like buying extra stock or covering fluctuations in your income) could leave you locked in to an expensive facility even if you no longer need it:

  • Long-term finance facilities tend to have lower interest rate – but the interest compounds, and you’ll end up paying more interest overall than on a loan you repay more quickly.
  • Some long-term facilities have break penalties, which means you could pay substantial fees if you wish to terminate them early.
  • Many long-term business finance facilities require security – your lender will have a legal interest in any assets you offer as collateral for a secured loan, so you will no longer be able to sell or replace them without getting approval, which could be a slow or complicated process.

Short-term finance

Using a short-term facility to cover major investments is a risky and expensive strategy that could leave your business in serious difficulties:

  • With short-term finance facilities like unsecured business loans, credit cards and lines of credit the lender typically has the right to withdraw them at any time. This could leave you without finance that you still urgently need.
  • Interest or factor rates on short-term business finance is usually higher than long-term facilities, making it a very expensive option if not repaid swiftly.

Before applying for a business loan, it’s vital that you prepare a detailed business case to establish what type of finance is the most suitable – and whether a business loan is the right choice for your business at this time.

Preparing a business case

Business finance can be a valuable tool, keeping you afloat through income fluctuations or enabling you to strengthen and grow your business.

But business finance can be very costly and unless the funds help you to generate enough extra cash to cover all those costs your business could quickly spiral into debt.

A business case will detail:
  1. How you plan to use the funds from your business loan (your strategy)
  2. How much you need to borrow to achieve your goals
  3. How long you will need the funds (term of the loan)
  4. What outcome you expect (how you expect these borrowings to strengthen or grow your business)
  5. Financial projections
  6. Cost of a loan at different interest rates (if your interest rate is variable, the cost could increase over the term of the loan, so it’s important to consider the impact rate rises could have on your financial position)
  7. How much you can realistically afford to repay each month
  8. How much additional profit (after all costs, not turnover) you expect to generate

Building a Business Case

Your accountant or independent financial advisor will be able to help you create your business case, assess whether a business loan is the right move for your business at this time, and decide which type of business finance to apply for.

How business lenders assess applications

Although online lenders are more risk-tolerant than the banks, they will still evaluate your application to decide whether they are willing to lend to your business, and if so, how much they believe you can afford to borrow.

Each lender will have their own formula for this assessment process, but these processes all tend to be based on the same basic criteria.

How business lenders assess applications

You may hear these referred to as ‘the five c’s of business lending’.

Some businesses, especially start-ups that haven’t yet established a steady cash flow, will not meet these criteria and will not qualify for a business loan.

Since an unsuccessful loan application could leave a damaging black mark on your credit record, it’s important to consider these criteria when preparing your business case.

The 5 ‘C’s of business lending:
The Five C's - Collateral
1. Collateral

If you’re thinking of applying for a business loan from a traditional lender collateral is likely to be very important. Most banks will only offer secured business loans, so you’ll need to have property or assets equal in value to the amount you want to borrow. Once you have used those assets as security you will need the permission of the lender if you intend to sell, redistribute or replace them, and you may be required to take out extra insurance to protect them.

Many forms of business finance, including unsecured business loans, do not require collateral. For other types, such as a vehicle or equipment loan, you can use the new asset you’re acquiring as security.

The Five C's - Capital
2. Capital

Having some capital in your business gives the lender a level of security and makes you a less risky prospect. If you are forced to default on your loan, or if the worst happens and you are forced into liquidation, there is a chance the lender will be able to recover what you owe them.

For some lenders and some types of finance (typically medium- to longer-term loans), this can be important. Other lenders may be willing to lend to a business with little or no capital, if the interest rate is high enough.

The Five C's - Character
3. Character

For traditional lenders, this can be a major factor. Character includes your credit rating and history, and your reputation with customers and suppliers for fulfilling your contracts and making payments on time. Banks may also look at how long you have been trading, your position within your market sector, the overall status of your industry, how diversified your income is, your business strategy, and the level of skills and experience within your management team.

Most online lenders will check your credit rating but pay less attention to other character factors. Even a poor credit rating will not automatically prevent you from getting business finance – some lenders actually specialise in ‘bad credit loans’ – although these are always more expensive since the risk to the lender is so high.

The Five C's - Conditions
4. Conditions

Conditions are the terms, including cost, on which a lender may be willing to offer your business finance. Collateral, capital and character will all have an impact on the conditions – if yours is a well-established business with a first-rate credit history, high annual turnover, plenty of equity and assets, and an excellent position within a booming market sector, you can expect to borrow on the best available terms and have your pick of lenders.

If not, there’s a good chance you’ll still be able to find a lender in the alternative finance market, but you can expect to pay a higher rate of interest. You may also be asked to agree to restrictive terms, like not being able to offer credit terms to your customers.

Australia’s banks are subject to strict regulations but these don’t yet apply to alternative lenders, so it’s important to be cautious and make sure you understand all the terms – plus the full cost – of any business finance you are offered. Be sure to consider the conditions carefully before finalising your loan application, as they could have a big impact on your business.

The Five C's - Capacity
5. Capacity

Capacity assesses your ability to repay the money you want to borrow, plus interest and other costs. The lender will look at how much cash your business generates and your existing expenses. What matters is not your turnover – it’s your clear profits after all overheads and expenses.

Your cash flow is also important – having paper profits that are all tied up in bad debts or inventory won’t help you to make your loan repayments.

The amount of cash you have available to cover your monthly repayments will dictate how much you can afford to borrow – if anything. Capacity is the most important of the five c’s – if you already have too much existing debt to service, or if you don’t have enough cash to meet your repayments, the chances are you won’t be able to find finance on any conditions.

This is actually in your interest as much as in the lender’s – taking on debt finance you can’t afford is a fast track to business failure. You’ll need to seek an alternative source of funding or make changes within your business to improve your profitability.

If you do not believe your business will qualify for a business loan, you could still consider non-debt financing options like invoice finance – or turn to alternative sources of funding such as equity finance, peer-to-peer lending or crowdfunding.

10 types of business loan

Here is an overview of some of the most popular types of business finance in Australia.

Types of Business Loans - Unsecured
1. Unsecured Business Loans

An unsecured business loan is an all-purpose short-term loan, usually with a term of 3 – 12 months. You can use it to finance any business activity.

While very few SME’s will qualify for a business loan from a high-street bank, unsecured business loans are accessible to most SMEs that have been successfully trading for 6 – 12 months, thanks to the large number of alternative finance providers offering loans on a wide range of terms.

Even if your business has a poor credit rating you may be able to get an unsecured business loan from one of the lenders who specialise in high-risk loans.

The main advantages of an unsecured business loan are speed and flexibility – and, of course, the fact that you don’t need to have assets to offer as collateral. Unlike the high street banks, which require extensive supporting documentation and can take weeks to process a loan application, most online lenders will process an unsecured business loan application within hours.

The downside of this accessibility and flexibility is cost. Unsecured loans are higher risk for the lender, and you can expect to pay a higher rate of interest plus higher fees than with a traditional secured loan.

You may also be asked to provide a personal guarantee of the loan, which means that your home or other personal assets could be at risk if your business can’t keep up its repayments.

The cost of an unsecured business loan is usually calculated as a factor rate rather than an interest rate. This means that you’ll pay back a multiple of the loan, e.g. 1.15

Loan Amount
Factor Rate
Full Amount Payable

This will be calculated at the start of the loan on the full balance, and the interest will be added to the principal. You’ll then repay the full amount in regular instalments on the schedule you agree with your lender.

While unsecured loans can be expensive, they are also quick, flexible and accessible, making them one of most popular business finance options in Australia. With a fast, online application process and speedy processing you may even be able to get same-day funds.

Types of Business Loans - Line of Credit
2. Line of Credit

A line of credit is a flexible at-call facility much like an overdraft. Like a small business loan, you can use it for any business purpose, and it usually has a term of 3 – 12 months.

The main difference between a loan and a line of credit (LOC) is that you won’t have to pay interest on funds you’re not using.

With a LOC you’ll have an agreed credit limit and be able to access funds up to that amount – but interest will only be charged on the amount of funds you draw down.

Interest will usually be calculated daily, like on a business credit card, and charged at the end of each month.

Types of Business Loans - Line of Credit

The important thing to note about a LOC is that you will almost certainly have to pay for your facility – including set-up fees and possibly ongoing charges – whether or not you use it. This compensates the lender for the fact that they won’t be able to earn interest on the funds while they are making them available to you.

LOCs can be structured in several different ways. You may have a single-use facility which you can draw down in instalments and repay in regular instalments much like a normal loan. Alternatively, you could be offered a revolving facility, where you can use, repay and reuse the funds as often as you like within the term of the facility.

With a revolving facility you will also have to make regular payments – these may be interest-only, or gradually reduce your credit limit over time.

Rather than a fixed term, a revolving facility may have a review date – there is no guarantee that the facility will be renewed at that point, though, so it’s important to treat it as a deadline and be ready to repay your borrowings.

The main advantage of a line of credit is having cash at your fingertips the moment you need it – once the facility is approved you don’t need to get approval from the lender to draw down funds.

Interest rates tend to be high, though, and the lender may not give you an option to renew the LOC, so it is not suitable for long-term financing needs.

Types of Business Loans - Business Credit Card
3. Business credit card

Business credit cards are a very common form of short-term business finance. Most Australian SMEs have a business credit card facility even if they have no other debt.

As with a personal credit card, business credit cards tend to have interest-free periods (typically around 45 days) on most purchases. If you can repay your full balance by the end of the interest-free period then you can avoid paying interest at all, which can make this a very economical form of business finance – especially if you opt for a low-cost facility with no annual fees.

However, the opposite can be true if you are not able to repay the full balance of your credit card by the due date. Business credit card interest rates can be extremely high, up to 20%.

Note that some credit card facilities also have very high fees – including set up charges and ongoing admin fees – which can make them even more costly and you’ll have to pay these even if you don’t get much use out of the facility.

Credit cards with reward schemes tend to be at the higher end of the cost scale, so be sure to evaluate whether the value of the rewards to your business exceeds the cost – often, it won’t.

Many business owners misunderstand interest-free periods, which actually run from the start of each billing cycle. Any purchases made within that billing cycle – regardless of whether they are made on the first or the last day – will begin incurring interest at the same time, and if you don’t repay the full balance by the due date then the interest will be calculated from the original purchase date.

Types of Business Loans - Business Credit Card

If you don't pay the full balance by the due date, you will NOT get any interest-free days at all. You'll need to pay interest on everything from the date of the purchase (less any payments you've made).

In the example above, you would be paying interest on the airline ticket from the 10th Sept!

You can use business credit cards for any purpose, but they are ideal for making smaller purchases (online or in stores) or for paying bills when your cash flow is fluctuating.

A business credit card can be withdrawn by the lender at any time, so you can’t rely on it for longer-term financing needs.

Often, you will be asked to provide a personal guarantee for a business credit card, which means you’ll be personally liable if your business defaults. This could put your home or other personal assets at risk.

Types of Business Loans - Equipment Finance
4. Equipment finance

Equipment leasing is a medium-term arrangement (generally 1 – 5 years) that you can use to buy plant, equipment, machinery or vehicles for your business. The amount of the finance and the term of the lease will be directly tied to the cost and expected life span of the asset you are buying.

Under a lease agreement, the lender will purchase the asset on your behalf and lease it back to you until the end of the loan term. At that point, depending on how the lease is set up, the lender may take back the asset or sell it to you for a residual amount.

Types of Business Loans - Equipment Finance

Equipment lease finance can be quicker and easier to get than many other forms of debt finance since the loan is secured on the asset. Many vendors offer in- house finance and will take care of the application process as part of the purchase. However, it’s important to research your options carefully as rates can vary widely and vendor-arranged equipment finance is typically very expensive.

In most cases you won’t have to pay a large up-front deposit on your equipment lease and you may be able to structure your lease payments to suit your income patterns, which can minimise the impact on your cash flow. If your business is registered for GST you may also be able to claim credits for the GST component of your lease charges.

Depending on the type of asset and the type of lease, the lender may be responsible for maintenance and upkeep of the equipment or vehicle – but if this is the case, you can expect to be charged a service fee and they may impose restrictions on the way and amount you use it.

Be aware that many equipment leasing contracts have early-termination penalties, so you may find you can’t break the contract without paying substantial fees even if you no longer need the equipment or the finance. You should be wary of this if there is a risk that the equipment will become obsolete during the term of the loan – especially if you’re buying IT or communications equipment.

Types of Business Loans - Hire Purchase
5. Hire purchase

Hire purchase is an alternative form of equipment finance, in which the lender buys the equipment and sells it back to you in instalments. As with lease financing, the lender will own the asset until the end of the lease period (usually 1 – 7 years), but with hire purchase the ownership will pass to you with the last payment. At that point you will be free to use or dispose of the asset as you wish.

Types of Business Loans - Hire Purchase

As with an equipment lease you may be able to structure your repayments to match your cash flow and you may be able to claim GST credits. However, you will need to pay an initial deposit which could hit your working capital hard.

Like with an equipment lease, you may be able to agree on a repayment schedule that matches your income and cash flow. Some hire purchase agreements have lower monthly payments but a large ‘balloon’ payment at the end to cover the residual cost, and you’ll need to have funds available (or be able to sell the asset) to cover that final payment.

During the term of the hire purchase contract you will be responsible for insuring and maintaining the asset, even though it will not legally belong to you.

Like equipment leasing, hire purchase is generally more expensive than a business loan.

Types of Business Loans - Invoice finance
6. Invoice finance

Invoice finance, or ‘factoring’ is different from other forms of business finance as it does not involve taking on debt.

Instead, you will sell your outstanding invoices (accounts receivable) to a third party. You will receive an up-front payment, typically between 70% and 95% of the value of the invoice, and the factoring company will then collect payment from your customer.

Once the invoice has been paid the factoring company will deduct their fee (usually around 3 – 5%) and transfer the balance to you.

Types of Business Loans - Invoice finance

Some factoring companies will allow you to enter into a flexible ‘spot’ financing arrangement where you select which invoices you want to sell, when. Others will require a ‘full ledger’ agreement where you have to sell all the invoices from a particular customer or over an agreed period.

The main advantages of invoice finance are:
  • You will be able to offer credit terms to your customers – which can be a big competitive advantage – but still receive payment at the time of sale. If working capital is tight this can be vital, since cash flow problems can swiftly bring down an SME even if it’s profitable on paper.
  • It saves you the time and hassle of collecting debts from your customers. There are two types of factoring though:
    1. Recourse factoring, where you may be forced to buy back the invoice from the factoring company (i.e. repay the advance) if the customer fails to pay. You will then still have to chase them for payment.
    2. Non-recourse factoring, where the finance company will take the risk of non-payment, and all you will lose is the residual balance payment if the customer defaults.
  • The factoring company will assess the creditworthiness of your customers, not your own credit rating and trading history, so factoring may be available to less-established businesses that may not qualify for other forms of business finance.

The biggest downside of invoice factoring is that you’ll have no control over the way the factoring company treats your customers when they pursue payment – there is a risk that they will use aggressive methods that will alienate your customers and damage your reputation.

The other thing to consider is that invoice factoring shaves a percentage off your profits without giving you any extra cash to invest in your business. All you are paying for is a timing advantage.

Types of Business Loans - Merchant Cash Advance
7. Merchant cash advance

A merchant cash advance is a specialised form of loan only suitable for retail or hospitality type businesses that make daily sales via credit card or EFTPOS. To qualify, you will need to have a proven history of making a minimum average volume of sales.

It is a short-term loan (generally 1 – 12 months), which you will repay in daily instalments (weekdays) as a percentage of your sales.

The following simple example shows how you would repay your loan with 10% of your daily merchant sales.

Types of Business Loans - Merchant Cash Advance

A merchant cash advance has two major advantages – it is typically very quick to arrange, and the repayments are directly tied to your cash flow. For merchant businesses with income that fluctuates from day to day and week to week, that can be far more convenient than making loan repayments on a fixed schedule.

However, merchant cash advances are a very expensive form of finance – interest rates can be as high as 200% APR – and providers aren’t government regulated like Australia’s banks, so there is a risk that they will impose restrictive conditions on your business as part of the loan terms.

Types of Business Loans - Trade Finance
8. Trade finance

If your business involves importing or exporting goods, there are various short- term financing instruments you can use to reduce the risks involved in cross- border transactions, including bills of exchange, guarantees and letters of credit.

Trade finance is especially useful if you don’t have trusted trade partners and are dealing with unknown parties, or are doing business in countries that have different legal systems and trade customs.

Rather than having to trust that the buyer will pay when they receive the goods – or that the seller will ship the goods you have paid for – a trusted financial institution will step in to make sure that the payment is made once they have proof that the goods have been shipped.

Types of Business Loans - Trade Finance

With some forms of trade finance, the lender will make an up-front cash payment to the seller as soon as they have proof that the goods have been shipped, then collect payment from the buyer. This is one of the biggest advantages of trade finance, because it helps to keep cash flow steady and cover all the costs involved in manufacturing, storing and shipping the item, even where the customer only pays on receipt of their goods.

Types of Business Loans - Traditional Bank Loan
9. Traditional bank loan

If your business is well established, a traditional bank loan could be the most economical option for major, long-term purchases. Traditional business bank loans are generally secured, making them a low risk option – and interest rates tend to reflect that.

However, very few SMEs find that they meet the banks’ rigid lending criteria. What’s more, applying for a bank business loan can be very time-consuming, so even if your business would qualify, a bank loan may not be an option if you need fast access to cash.

Also, there is usually a minimum amount you can borrow, and since bank loans are geared towards larger businesses this may be beyond your needs or capacity.

If you do decide to apply for a traditional bank loan you’ll need assets – either business or personal – to use as collateral. You’ll also need to provide a wide range of supporting documents, so be prepared with full financial statements, your business and strategic plans, and detailed information about your business, customers, market sector and management team. Expect the application process to take several weeks.

Types of Business Loans - Traditional Bank Loan

If you qualify, you’ll generally be able to choose between a fixed or variable interest rate, or a combination of the two. Fixed rate loans allow you to budget accurately and protect you from the risk of rate rises, but interest rates are typically higher, and they usually have substantial fees for early termination.

If you’re considering a variable rate loan, be sure to run projections and make sure you can afford repayments at higher interest rates, in case rates rise over the term of your loan.

Types of Business Loans - Personal Loan
10. Personal loan

If you are unable to access any form of finance through your business, especially in the start-up phase, you could turn to a personal loan for the funds you need to get off the ground.

If you qualify for a personal loan you can use the money for any purpose – for example, to spread the cost of the materials, equipment, personnel or marketing you need to successfully launch your business.

If you’re applying for a personal loan the lender will assess your individual financial situation using the five c’s – expect them to look at your personal credit rating, your family’s assets, income and expenditure, the stability of your income and your capacity to cover repayments.

You many need to use your personal assets, such as your home, as collateral. This is a high-risk strategy, because if your business fails you could lose those as well as your business.

Personal loans tend to have higher interest rates than unsecured business loans but are generally less expensive than other types of business finance like hire purchase or equipment leasing.

Once you have used personal assets as security you will need the permission of the lender if you intend to sell, redistribute or replace them, and you may be required to take out extra insurance to protect them.

How to choose a business lender and business finance product

Once you’ve decided what sort of finance you need, the next step is to find the right lender and choose a suitable loan product.

With so many choices on offer this can be easier said than done!

How to choose a business lender
  • You may find that there is a lender who specialises in your industry, region or business model – it’s worth looking for these first, because if you’re their target customer they may be willing to lend to you on more favourable terms. They are also likely to be more supportive of your long-term goals – building a relationship with them now could help you get additional funding as you grow your business, should you need it.
  • If there’s no reputable specialist lender for your sector, makes it easy for you to compare the cost of different business loan products.
  • You could also reach out to your business or social networks for recommendations – other business owners’ experiences will be a useful guide for what you can expect from each lender.
  • Alternatively, you could turn to a reputable business loan broker for help. A skilled broker will help you find a suitable lender, access any special offers or deals, and compare the vast number of products on offer. They can work with your financial advisor to help you decide on your borrowing strategy, and they’ll also help you prepare your application.

Whichever method you choose, the important thing is to research several different lenders before you make a decision and look closely at the full costs (including any hidden feess) and terms and conditions of each loan product so you can make a fair comparison.

After all, you want to be sure you are getting the best possible deal.

If in any doubt, consult your independent financial advisor for help evaluating your options.

Preparing your business finance application

Once you’ve decided which type of finance you need and which lender to approach, you’ll need to prepare your supporting documents and complete an application.

Business finance application

The process will depend on whether you’re applying to a bank or an alternative lender, and what type of finance you need.

  • If you’re applying for a traditional bank loan, this could be lengthy process. Banks usually require a wide range of documents which could include two or three years’ full financial statements, performance ratios, cash flow projections, business plans and swot analysis, details of your customers and contracts, and extensive information about your business and management team.
  • For short-term finance options like an unsecured business loan, line of credit or a business credit card, you will probably be asked for 3 – 12 months’ bank statements and ID.
  • Mosts lenders are now able to retrieve your bank statement data electronically - you’ll just need to login to your bank via a special read-only service.
  • If you need to give a personal guarantee for the loan, you may need to provide details of your personal financial circumstances too.
  • For medium-term secured facilities like equipment or vehicle loans your lender will be acting as a third-party in the purchase, so you’ll need to provide details of the seller and the asset you’re buying as well as your own financial records. If the asset is second hand the lender will probably want to make their own valuation before confirming your finance.
  • For invoice finance, the lender will be more interested in the credit rating and payment history of your customers than your own creditworthiness, so you can expect to be asked for their details plus an ‘aging report’ for your accounts receivable.
It’s important to have all the supporting documents you’ll need in hand when you apply for your business finance, otherwise the lender may not be able to process your application.

How to apply for your business loan

Once you have gathered all your supporting documents, you’ll need to follow the lender’s individual application process.

  • If you’re applying for finance from a traditional lender, this may involve a face-to-face meeting with an advisor at your bank, where you’ll discuss your requirements, fill in the application form and present all your supporting documents. They may ask additional questions or request extra documents before submitting your application to their business lending team.
  • Depending on the type of finance you’re seeking and the complexity of your application, it could take days or weeks for the bank to assess your application. If you are successful, it could then be several more days before you receive the funds.
  • Most alternative lenders have a much more streamlined process. Some SMEs turn to the fintech market instead of traditional lenders for this very reason – some business opportunities just won’t wait for a loan approval, and borrowing from an alternative source can allow a business to be swift and agile when necessary.
Applying for a business loan

In most cases you’ll have to complete a simple online form and provide basic information about your business, including your ABN, your location and sector, how your business is structured, how long you’ve been trading, and your turnover.

You’ll also need to provide information about how you plan to use the money, how much you need to borrow and how long you need the funds for. You’ll then upload your supporting documents and submit them along with your form.

In some cases, you could get an instant response to your application, although it’s more usual for lenders evaluate applications within a few hours.

If their credit team needs more information or has questions to ask, the lender will contact you quickly and you can expect a definitive answer within a day or two.

If your application is approved, you’ll sign your loan agreement (usually electronically) and the funds will generally be transferred to your nominated account within hours! You can read about how to get approved for a business loan here.


Do I need business finance?
Do I need business finance?

To answer this question, you’ll need to create a business case for your loan and consult your financial advisors. Business borrowing always comes at a cost, and you need to make sure that you have the capacity to repay the loan.

There are many reasons why SMEs take out business loans. If business finance will help you to strengthen your business position (for example, by boosting your working capital and keeping your cash flow steady) or to grow your business - it could be very beneficial.

But growth isn’t always profitable – and borrowing to finance growth could be risky if you don’t make enough extra profits to cover all the costs of your finance. It’s very important to assess your specific circumstances to decide if, and when, to apply for business finance.

What sort of business finance do I need?
What sort of business finance do I need?

Each type of business finance is suited to different purposes, and each has its pros and cons. The most important thing is to match the term of your loan to your business needs. E.g.:

  • If your main priority is keeping your cash flow steady you may need a flexible at-call facility like a business credit card or line of credit.
  • If you want to finance a major purchase, such as buying machinery or vehicles, some form of medium-term equipment finance might be your most suitable option.

If in doubt, consult your financial advisor for guidance on the most suitable type of finance for your business.

Where can I get business finance?
Where can I get business finance?

This will depend on the type of finance you want, and the nature of your business. If you’re seeking low-cost, long-term finance, are not in a rush, and have a well-established business with assets to use as security you could approach a high-street bank for a traditional loan.

If you need funds fast or don’t meet the traditional lenders’ strict criteria then there are scores of finance providers in the alternative/fintech market offering unsecured business loans or other forms of business finance.

If you’re looking for equipment or vehicle finance you may be offered this by the seller. Although this is very convenient it could be much cheaper to get alternative finance, so it’s important to look around.

Whatever type of finance you are looking for, be sure to research your options carefully and compare costs, terms and conditions from several providers before making a decision, as these can vary widely.

Remember that alternative finance providers aren’t subject to the same regulations as Australian banks so you should check their reputation and ask for recommendations if you’re not sure.

A business loan broker will be able to help you identify suitable lenders and compare products.

What if I don’t qualify for business finance?
What if I don’t qualify for business finance?

If you haven’t been in business for long or don’t have the capacity to service a business loan, you could consider invoice finance (as mentioned above) for a quick boost to your working capital. This will only give you a timing advantage though – if you need extra funds to invest in your business then you may consider seeking finance from another source.

You could look for an equity partner such as an angel investor or try peer-to-peer lending or crowdfunding.

How do I apply for a business loan?
How do I apply for a business loan?

Each lender will have their own process which you’ll need to follow, and of course this will depend on the type of finance you’re seeking.

It’s important to create your business case and prepare all your supporting documents before you begin your application.

Generally, if you’re applying to traditional lenders you’ll need to go through a slow and complex application process which could take several weeks. You may have to begin this with a face-to-face meeting.

Most alternative lenders have online application forms and you’ll be asked to upload your supporting documents along with your application. They use sophisticated software to assess applications and may be able to give you an instant decision – if not, you can still expect a response within a few hours.


  • ~70% of small businesses in Australia borrow money to help fund business costs and grow.
  • There are many reasons to take out a business loan, but you should only do so in the right circumstances.
  • Choosing the right loan product, and lender for your business is part of the process.
  • Following the tips and advice above will help you make the right decisions and increase your chance of receiving funding.
Did you know you had so many choices? Leave a comment below.
Add a Comment