Business loans - or business finance - covers the various types of funding available to SMEs. Whether it be from banks, non-bank lenders or specialist financiers in Australia, businesses can gain access to funding or purchase equipment to help grow their business through both unsecured and secured finance options.
Whilst you can get a business loan for any amount, the average business loan is $30,000. The average business loan term is between one and three years.
The problem for business owners needing to access funding
The main issue cited by business owners around business loans is a lack of clarity and information; their eligibility, how to apply, and who to apply with. Today, we’ll address these concerns and give you the information you need to make the best decision for your business and your future.
In our business loans guide, you’ll learn:
- The types of business loans available
- What they are most commonly used for
- How to choose the best business loan for your needs
- How each type of business finance works
- The pros and cons of each
- How to get a bad credit business loan if you are an ex-bankrupt
- How to choose between short-term and long-term finance
- Where to apply for a loan and what you’ll need to qualify
- How lenders assess business finance applications
- How to compare interest rates, terms and fees
Top 12 Business Loans in Australia in 2019
Here is an overview of the most popular types of business finance in Australia.
What is the best type of business loan in Australia?
The best business loan is the one that is most suitable for your business needs. Ideally, it gives you the amount of funding you need with repayments you can comfortably meet. The table below will allow you to quickly see which type of business loan may be suitable for your business needs.
How to choose a business loan
|Need for business finance||Business loan options|
|I need fast access to short-term finance||Small business loan
Unsecured business loan
Business credit card
Business line of credit
|I need a new business vehicle or equipment for my business||Chattel mortgage
Commercial hire purchase (CHP)
|I need flexible access to funds||Business line of credit
Small business loan
|I need a one-time or revolving credit facility||Business credit card
Business line of credit
|I need upfront payment on customer invoices or overseas sales||Invoice finance
|I want to use an asset as security on a loan||Secured business loan|
|I want to use my property as security and don’t need fast approval||Traditional bank loan|
|I want a business loan but I am an ex-bankrupt||Bad credit business loan|
The 11 most common uses for business loans in Australia
- Fast access to vital cash flow
- Buy essential equipment and stock
- Buy and maintain vehicles
- Pay unexpected bills such as tax bills
- Hire new staff
- Acquire new premises or upgrade and refurbish current premises
- Buy or upgrade IT systems
- Refinance credit card debt
- Acquire a competitor
- Build reputation and brand recognition through marketing and advertising
- Build a website and establish a social network presence
The 12 types of business loans and how they work
Each type of business loan available in Australia is unique in how it works, and understanding how these business loans work - and what they are most suitable for - will help you decide which one may be the best finance option for your business.
It’s important to understand the tax implications or benefits of each particular loan type before accepting funding from a lender.
Below, we’ve summarised each type of business loan currently available - you can learn about each of these in depth by following the links to their individual guides.
#1 - Unsecured Business Loans
An unsecured business loan is an all-purpose short-term loan, usually between 3 - 12 months. It can be used for almost any business purpose, and is offered by a large number of specialist finance providers with a wide range of terms. The three main advantages of an unsecured business loan are:
- Speed of approval
- Flexibility in approval criteria
- They do not require security - i.e. collateral
Most banks have strict criteria for standard business loan approval, and not many businesses will meet these. SMEs in particular will find it difficult to get approved by a bank for a loan, which makes unsecured business loans appealing to most SMEs successfully trading for at least six months.
In contrast to the stricter criteria and slow approval process when applying through banks, most online business loan lenders will process an unsecured business loan application within hours by using finance technology to assess and approve your application.
As there is no collateral used on an unsecured business loan, they present a higher level of risk to a lender. This is often reflected by higher interest rates and fees. If you’re considering an unsecured business loan, you’ll want to weigh up the importance of fast access to cash versus the higher interest rates that come with them.
If you’re using an unsecured business loan to acquire extra stock at a discount, or to close an important business deal, then you may be able to repay the loan amount early and avoid paying large amounts of interest over a long term.
When applying for an unsecured business loan, try to negotiate a discounted rate for early repayment.
Due to the speed, flexibility and accessibility of unsecured business finance, they have quickly become the most popular form of business finance Australia has on offer. You can learn more about this type of business loan in our unsecured business loans guide.
Unsecured Business Loans Pros and Cons
#2 - Small Business Loans
A small business loan is specifically for small and medium-sized businesses. A business will need to be trading for at least 6 months and have a minimum monthly revenue of $5,000 to apply for a small business loan. They are growing increasingly popular in Australia, as unsecured small business loans up to $150,000 can be approved and funded on the same day through a specialist lender just by providing your bank statements.
Small business loans can be accessed through banks or specialist small business lenders, with the approved amount relative to the revenue of the business. You’ll get a lower interest rate from the bank (if you can get approved) but faster approval through a specialist lender.
The best small business loans available are perfect if you need fast access to working capital or to pay one time expenses.
You can learn more about this type of business finance in our small business loans guide.
Small Business Loans Pros and Cons
#3 - Line of Credit
A business line of credit is a flexible type of business finance that is similar to an overdraft. Like a small business loan, you can use it for any business purpose, and 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.
A business line of credit can be structured in two ways:
- A single-use facility allows you to draw down in instalments and repay in regular instalments much like a normal loan.
- A revolving facility allows you to draw down, repay, and reuse the funds as often as you like within the term of the facility.
The important thing to note about a LOC is that you may have to pay for your facility - including set-up fees and possibly ongoing charges - whether or not you use it. When you are approved for a business line of credit, a lender is essentially promising you access to this money at any time you wish. You facility fees will compensate the lender for the fact that they won’t be able to earn interest on these funds while keeping them available for your exclusive use.
A line of credit is like 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.
You can learn more about this type of business loan in our business line of credit guide.
Business Line of Credit Pros and Cons
#4 - Business Overdraft
A business overdraft works in a similar way to a Business Line of Credit. A lender will make an amount of credit available to your business, which you can access when you have insufficient funds in your account to make a purchase or withdraw funding. A business overdraft can be unsecured, or secured by using property as collateral. Of the two options, a secured business overdraft will have lower interest rates.
A business overdraft will be linked to your business banking account. Once you withdraw funds using your overdraft, you will be required to repay the withdrawn amount - and any interest accrued - through scheduled payments. Depending how your business operates and its annual turnover, you may be given the option to choose between weekly or monthly repayments.
In Australia, business overdrafts are commonly used by:
As with a business line of credit, you will be required to pay a facility fee - an annual fee to keep the overdraft amount available - and interest on a business overdraft will only be calculated on the amount withdrawn and each time you withdraw an amount.
You can learn more about this type of business finance in our business overdraft guide.
Business Overdraft Pros and Cons
#5 - 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. A business credit card can be used for any business purpose, however they are ideal for making smaller purchases (in-store or online) or for paying bills (such as an unexpected tax bill) when your cash flow is fluctuating.
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 any 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, possibly up to 20%. Some credit card facilities also have very high fees – including set-up charges and ongoing admin fees – which can make them unsuitable if you aren’t regularly using them or unable to repay the borrowed amount within the interest-free period.
The most misunderstood aspect of a business credit card is the interest-free repayment period:
- These periods start at the beginning 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
- If you don’t repay the full balance by the due date, the interest will be calculated from the original purchase date
Business credit cards are sometimes coupled with reward schemes, though be sure to evaluate whether the value of the rewards to your business exceeds the cost – often, it won’t. A business credit card can also be withdrawn by the lender at any time, so this type of business loan is often not suitable for long-term business finance.
Many business owners use a business credit card to earn frequent flyer points.
Business Credit Card Pros and Cons
#6 - Equipment Finance
Equipment finance is generally a medium-term arrangement between one and five years, which businesses use to fund the purchase of equipment, machinery or vehicles. The amount your business is approved for - and the term of the finance - will be directly tied to the cost and expected life span of the asset you want to buy.
It is often quicker and easier to gain approval on equipment finance than many other forms of business finance, as the loan is secured by the asset you purchase. Equipment finance is available through many banks and specialist asset finance lenders. Specialist asset finance lenders will offer quick approval and a streamlined application process.
You can see the different types of equipment finance offered by lenders below.
Types of Equipment Finance
|Type of Finance||Main point of difference|
|Chattel Mortgage||Full ownership - Asset used as security on the loan|
|Commercial Hire Purchase||No ownership - Asset is purchased by lender and leased to the business.|
|Finance Lease||Ownership benefits - Asset is purchased by lender and leased to the business.|
|Operating Lease||Part ownership - Asset can often be purchased from lender at the end of the term.|
A chattel mortgage allows a business to take ownership of an asset - or ‘chattel’ - at the time of purchase. The lender advances funds to a business to purchase an asset - typically a vehicle - which the business then owns. As the asset you purchase will always act as security on the loan, chattel mortgage interest rates are usually quite low.
Commercial Hire Purchase (CHP)
A Commercial Hire Purchase (CHP) allows a business to hire an asset from the lender instead of purchasing it outright. The lender agrees to purchase the asset - such as a vehicle or piece of machinery - on behalf of the business, which will then hire the asset from the lender over a set period of time and for a fixed monthly repayment.
A finance lease enables a business to have both the use of business equipment and the benefits of ownership, while the lender retains actual ownership of the asset. Similar to a CHP, the lender will purchase the asset on behalf of the business, which then pays the lender a fixed monthly lease rental for the term of the lease.
An Operating Lease - also called an Equipment Rental Agreement - is used when a lender agrees to purchase equipment on behalf of a business and rent it out over a period of time. Like a finance lease or CHP, your business makes fixed monthly payments to use the asset, while the main difference is that you should be able to purchase the equipment from the lender at the end of the rental period.
Our comprehensive equipment finance guide covers everything you need to know about the different options for equipment finance, including the types of assets you can purchase, how to apply, and how to compare lenders.
Equipment Finance Advantages and Disadvantages
|Type of Finance||Advantages||Disadvantages|
|Commercial Hire Purchase||
#7 - Invoice finance
Invoice finance - also known as ‘factoring’ - is different from other forms of business finance as it does not involve taking on debt. Instead, your business will sell outstanding customer invoices (accounts receivable) to a third party, known as a factoring company.
You receive up-front payment - often between 70% and 95% of the invoice amount - and the factoring company will then collect payment from your customer. Once the invoice has been paid by the customer, the factoring company will deduct their fee - usually around 3 – 5% - and transfer the remaining balance to you.
You may be offered various types of invoice finance arrangements from a factoring company:
- A flexible ‘spot’ financing arrangement allows you to select which invoices you want to sell and when.
- A ‘full ledger’ financing agreement requires you to sell all invoices from a particular customer or over an agreed period.
As the factoring company will assess the creditworthiness of your customers, not your own credit rating and trading history, factoring may be available to less-established businesses that do not qualify for other forms of business finance.
The main advantages of invoice finance are:
- You will be able to offer credit terms to your customers.
- It saves you the time and hassle of collecting debts from your customers.
There are also two types of factoring:
- Recourse factoring - you will need to buy back the invoice from the factoring company if the customer fails to pay - i.e. repay your advance amount. You will then be responsible for collecting payment from the customer.
- Non-recourse factoring - the finance company will take on the risk of non-payment if the customer fails to pay, and all you will lose is the remaining balance payment.
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.
Be aware of how the invoice finance company collects and obtains payments from your customers.
You can learn more about invoice finance and factoring in our invoice finance guide.
Invoice Finance Pros and Cons
#8 - Merchant cash advance
A merchant cash advance is a specialised form of loan only suitable for retail or hospitality businesses that make daily sales via credit card or EFTPOS. To qualify, your business will need to have a proven history of making a minimum average volume of sales.
It is a type of short-term business loan generally between 1 – 12 months, which you will repay in daily instalments (weekdays) as a percentage of your sales.
A merchant cash advance has two major advantages:
- It is typically very quick to arrange
- Repayments are directly tied to your cash flow
For merchant businesses with income that fluctuates from day to day and week to week, this business finance option can be far more convenient than making loan repayments on a fixed schedule.
However, merchant cash advances are often a very expensive form of business finance – interest rates can be as high as 200% APR – and lenders aren’t regulated like Australia’s banks, which means they are free to impose restrictive conditions on your business as part of the loan terms.
Merchant Cash Advance Pros and Cons
#9 - Trade finance
If your business involves importing or exporting goods, trade finance is a short-term finance solution 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
- You are dealing with unknown parties
- You 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 ensure payment is made, once they have proof that the goods have been shipped.
With some forms of trade finance, a lender will make an up-front cash payment to your business 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, as it ensures steady cash flow for your business and covers all the costs involved in manufacturing, storing and shipping items, even where the customer only pays on receipt of their goods.
Trade Finance Pros and Cons
#10 - 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 business loan through a bank 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.
Additionally, there is usually a minimum amount you can borrow. As bank loans are geared toward 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.
Due to the speed and access to funding that business owners generally need, business owners are increasingly working with online business loan lenders.
Traditional Bank Loan Pros and Cons
#11 - Personal loan
A personal loan technically doesn’t fall under the ‘business loans’ category, so you won’t be restricted in how you use the funds as you would with other types of loan above. Although you will most likely use the majority - or all - of the funds for business purposes, you are ultimately free to use the money however you choose.
For example, you may choose to purchase materials, equipment, hire new staff, invest in advertising and marketing, and fund a personal investment or pay off personal debt as well. As with any type of loan, you should only ever borrow as much as you can comfortably afford to repay, and remember that the more you borrow, the more interest you will pay over the loan term.
If you’re applying for a personal loan, the lender will assess your individual financial situation and look at your:
- Personal credit rating
- Income and expenditure
- Income Stability
- Capacity to cover repayments
Unsecured personal loans have high interest rates, so using a personal asset - such as your home - as collateral will allow you to qualify for a secured personal loan. Although you will get a better rate, this is also a high-risk strategy; if your business fails, you could lose those assets as well as your business.
Personal Loan Pros and Cons
#12 - Bad Credit Business Loans
Bad credit business loans are a type of short-term business finance used by ex-bankrupts and businesses or business owners with a poor credit score or history of defaults. Interest rates for bad credit business loans will often be higher than other forms of business finance, and you may be asked to supply collateral or include a guarantor for increased security to the lender.
In Australia, bad credit business loans are often used if:
- You are an ex-bankrupt and have been discharged for a minimum of 6 months
- You are in a Part IX agreement or have a poor credit score
- Your business assets are tied up in court proceedings or cannot be accessed
- There is uncertainty over your ability to repay the loan amount
If you want to apply for a business loan but are concerned about previous defaults or a bad credit history, read our comprehensive Bad Credit Business Loans guide.
Bad Credit Business Loan Pros and Cons
What is the difference between short-term and long-term business finance?
Short-term business loans are often used by established businesses to cover sudden expenses, and can be either secured or unsecured. Using short-term finance for major investments is a risky and expensive strategy, however, and could leave you struggling to meet your repayments.
- Interest or factor rates on short-term business finance are usually higher than long-term facilities, making them a very expensive option if not repaid swiftly.
Long-term business loans are often used for financing vehicles, assets, and equipment. Using long-term finance for short-term business needs - e.g. buying extra stock, paying a tax bill, or covering fluctuations in your revenue - 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 versus Long-term finance
|Type of Business Loan||Benefit|
|Short-Term Business Loans||Ideal for covering sudden expenses|
|Long-Term Business Loans||Ideal for major business purchases|
What are the interest rates and terms on Business Loans?
The interest rate applied to your loan will vary, depending on:
- The type of finance you apply for
- The loan term
- The age and value of the asset or assets you wish to purchase
- The security or collateral provided
- Your personal credit profile
- The credit profile of your business
In the table below, you can quickly see the current starting rate for different types of business loans in Australia. Alternatively, you can compare equipment finance interest rates here.
Business Loans Interest Rates Comparison
|Type of Finance||Interest Rates|
|Unsecured Business Loan||From 9.90%|
|Small Business Loan||From 5.00%|
|Business Line Of Credit||From 5.07%|
|Business Overdraft||From 5.07%|
|Business Credit Card||From 5.88%|
|Equipment Finance||From 4.49%|
|Trade Finance||Rates set daily|
|Traditional Bank Loan||From 4.40%|
|Personal Loan||From 5.99%|
|Bad Credit Business Loan||From 16.00%|
How to choose a business lender for a loan
You can apply for a business loan with your bank, non-bank lenders, specialist finance lenders or by working with a finance broker. Finding the best lenders for a business loan will depend on the type of loan you are applying for and the profile of your business.
If you’re seeking low-cost, long-term finance, and don’t need same-day approval, well-established businesses with assets to use as security may choose to speak to their bank about applying for a traditional business loan.
Non-bank and specialist lenders
The majority of businesses seeking finance often can’t wait two or three weeks for approval. If you need fast approval on a business loan, or you don’t meet the strict criteria for approval through your bank, then your best option may be a non-bank lender or specialist finance lender.
Non-bank lenders provided over $1 billion in finance to small businesses in 2018, and are fast becoming the first choice for business owners seeking finance.
If you are only wishing to finance a vehicle for your business, you may be offered business car finance direct from a dealership. Although this is often the most convenient option in this situation, you will likely get a better rate with lower fees by comparing business loan lenders first.
If you are like the majority of Australian business owners and don’t have the time to research the best business finance options available and compare lenders, you can speak to a business loan broker. A broker will be able to help you identify suitable lenders and compare products, in exchange for a small, one-time fee.
Whichever type of business finance you are looking for, always research your options carefully and compare costs, terms, and conditions from several providers before making a decision, as these can vary widely and have a long-lasting impact on your business.
What do I need to apply?
To apply for a business loan in Australia, you’ll need to meet lender criteria and supply supporting documents so that they can assess your ability to repay the loan amount. The minimum requirements when applying for a business loan in Australia are:
- An ABN (Australian Business Number)
- A GST-registered business
- Permanent Citizenship or Residency
- A minimum business-operating time of six months
- Business bank statements
However, the qualifying criteria will vary between lenders, and between business loan types. For example, you can still apply for a business loan if you:
- Are self-employed
- Are a sole trader
- Have been trading for less than 12 months
- Are unable to provide sufficient documentation
For the fastest approval on a business loan over $150,000, you’ll need to provide a lender with supporting documents when applying, including:
- Proof of identity
- Proof of time in operation
- Financial records (provided by your accountant)
- Profit and Loss Statements - for the previous six months
- Balance Sheet
- Business bank statements - for the previous six months
- Rates notice (if you own a home)
- Rental agreement (if you are renting)
- ATO Portal access
How do business lenders assess loan applications?
If you want fast approval on a business loan, you’ll be considering a specialist non-bank lender. These lenders will allow you to apply online, and many will offer same-day approval on a business loan application.
When applying for a business loan online, lenders will assess your application based on your personal credit profile and the strength of your business in a number of areas. To make a quick and accurate assessment, you’ll often have to provide your ABN and details about:
- The structure of your business
- The location of your business
- The sector your business operates in
- Your monthly and annual turnover
- How long you have been operating
- How much you wish to borrow and for what term
- Details of the asset you wish to purchase
- How you will use the funds - i.e. a business plan
- Personal details - especially where you are required to provide a personal guarantee
To increase your chances of approval, your business plan should illustrate:
- How the funds will increase revenue for your business
- Financial projections for the business if approved for finance
- Details of business expenditure and how you plan to successfully repay the loan
Business Loans Summary
The majority of businesses in Australia are classified as SMEs (Small-to-Medium-Sized Enterprises), and around 80% of SME owners will consider applying for a business loan during the lifetime of their business. Business loans in Australia are available from a wide selection of lenders and each type of loan will have its own unique purpose and benefits.
In summary, business loans in Australia:
- Include many types of business finance, each with their own pros and cons
- Provide fast access to vital cash flow for SMEs
- Can be used to finance anything relating to a business
- Do not require a deposit in most cases
- Can be used to lease or rent assets and equipment
- Can be obtained from banks for low interest rates
- Can be obtained from online lenders for fast approval timeframes
- Can still be obtained by businesses with bad credit using a bad credit business loan
Business Loans FAQ
How much am I able to borrow?
The amount you can borrow with a business loan will depend on the revenue of your business, the type of loan you apply for, and the lender’s credit limits. The average business loan in Australia is $30,000.
What are the best interest rates for business loans?
The best interest rates for a business loan are offered on secured forms of business finance and to companies with a strong revenue and clear ability to repay the loan amount. Business loan interest rates in Australia can be as low as 4.40% and as high as 40%.
How long does it take to get approved?
You can get same-day approval on many types of business finance by applying with non-bank or specialist finance lenders. If you apply for a business loan through a bank, the process may take a few weeks.
Can I get a business loan if I don’t qualify with my bank?
Yes, you can get a business loan from many different non-bank lenders. The qualifying criteria with these lenders isn’t as strict as through major banks, and many will offer same-day approval on various forms of business finance. Non-bank lenders are increasingly popular with Australian SMEs needing fast access to business finance.
Where can I get guaranteed approval on a business loan in Australia?
You cannot get guaranteed approval on a business loan, however you can improve your chances of getting approved by making sure you provide all necessary supporting information and illustrate your ability to comfortably make repayments over time.