Why compare business loans with Money
Get personalised rates
No credit score impact
Expert help if you need it
$200 best match guarantee
How does a business loan work?
A business loan allows your business to borrow funds to purchase assets or access working capital for day-to-day operations and growth opportunities.
The business repays the loan, plus interest and fees, over a fixed term. Typically a business can borrow an amount of money relative to the level of revenue it generates.
- Borrow anywhere from $5,000 to $1m+
- Loan terms from 1 month - 7 years
- Fixed interest rates starting from 7.50% p.a. (excellent credit)
- Available to businesses, sole traders and self-employed individuals
- Can be used for any business purpose
- Weekly, fortnightly or monthly repayments to match your cash flow
You can get a business loan as a lump sum or an ongoing line of credit which you can draw on whenever you need, up to a limit.
There are two main types of business loan
Secured business loan
A secured business loan is backed by a commercial asset or residential property which acts as collateral to secure the loan. In some cases, you may be able to use commercial property (e.g. your business premises) as collateral. Secured finance usually comes with lower interest rates and more repayment flexibility because there’s less risk to the lender. The lender can reclaim and sell the asset(s) if you default on your loan repayments.
Unsecured business loan
An unsecured business loan is not backed by an asset or collateral. Because the loan isn't tied to any security, interest rates on unsecured business loans tend to be higher to offset the lender’s risk. That’s because if you default on the loan, the lender may not be able to recoup its losses. Your maximum borrowing amount may also be lower compared to a secured business loan.
What are the best interest rates on business loans?
Business loan interest rates in Australia start from around 7.50-15% p.a. for secured loans and 12-20% p.a. for unsecured business finance. But rates can be higher than this on some business loans.
Your business’s personalised interest rate will be based on the lender’s criteria and their assessment of how risky it is to lend to you.
Compare business loan interest rates
Business loan option | Small business loans |
|---|---|
Rates starting from | 7.50-15% p.a. |
Business loan option | Unsecured business loan |
Rates starting from | 12-20% p.a. |
Business loan option | Business line of credit |
Rates starting from | 8-15% p.a. |
Business loan option | Business overdraft |
Rates starting from | 8-15% p.a. |
Business loan option | Asset & equipment finance |
Rates starting from | 7.50-15% p.a. |
Business loan option | Invoice finance |
Rates starting from | 3-12% p.a. |
Business loan option | Fit-out finance |
Rates starting from | 7.50-15% p.a. |
Business loan option | Bad credit business loan |
Rates starting from | 18-20% p.a. |
| Business loan option | Rates starting from |
|---|---|
Small business loans | 7.50-15% p.a. |
Unsecured business loan | 12-20% p.a. |
Business line of credit | 8-15% p.a. |
Business overdraft | 8-15% p.a. |
Asset & equipment finance | 7.50-15% p.a. |
Invoice finance | 3-12% p.a. |
Fit-out finance | 7.50-15% p.a. |
Bad credit business loan | 18-20% p.a. |
10 factors that impact your business loan rate
1
The finance type
Secured business loans generally come with lower interest rates, as there is less risk for the lender. A fixed-term loan could also come with a different interest rate than an ongoing line of credit.
2
Type of security
For a secured loan, the asset being used as security will be considered. For example, for a business loan to purchase a vehicle, the age and condition of the asset will likely be taken into account. Newer assets that are in good condition will attract lower rates.
3
Business turnover
Businesses with a high level of annual turnover (e.g. $5m+) will qualify for lower business loan rates than a lower-turnover business.
4
Time in business
Established businesses with a few years of trading history generally get lower rates than newer businesses. A minimum of 12 months' trading history is a common lender requirement.
5
Industry
Some lenders tailor their rates based on the industry the borrower operates in. As you’d expect, businesses in lower-risk industries often qualify for lower rates.
6
Whether you're asset-backed
If the borrower providing a personal guarantee is asset-backed (i.e. owns a property), they’ll generally qualify for lower rates than a business borrower without assets.
7
Credit score
With a lot of lenders, a credit score below 600 will make getting a business loan more difficult, with higher rates applying for low credit score borrowers who are approved.
8
Credit defaults and dishonours
If there are defaults, court orders or insolvencies in the borrower’s credit history, higher rates will likely apply. Likewise, if bank statements show the borrower has recent dishonoured payments or has been overdrawn on their account, this could impact the rate offered.
9
ATO lodgements up to date
Borrowers with no outstanding ATO payments due will typically be offered lower business loan rates. If you are in arrears with the ATO but the payments are manageable you may still qualify but with a higher interest rate.
10
Loan amount and duration
This isn’t always the case, but some lenders will vary rates based on the loan amount and duration of the loan. Again, the common theme is that greater risk means higher rates.
If you have a strong business loan application, you may also be eligible to apply for larger loan amounts, with longer loan terms and lower fees.
How to structure your business loan
Andrew Beckett , Commercial Finance Broker
"The two key things to consider are: When do I get paid by my clients? What can I afford to repay on a daily, weekly or monthly basis? Once you know when you get paid and how much, subtract any relevant expenses and outgoings and your remaining amount should cover your loan repayments by at least 120%. Most lenders use what's called a 'debt to service cover ratio' and often look for the coverage to be at least 1.2x."
Andrew Beckett , Commercial Finance Broker
Who’s eligible for a business loan?
Generally, the minimum eligibility requirements for a small business loan in Australia include:
- Australian citizenship or permanent residency
- An active ABN or ACN
- Your business must be GST-registered (depending on the lender)
- At least six to 12 months of trading history
- A minimum annual business turnover of $75,000 - $100,000
- The ability to provide financials or bank statements
- A good credit score — the minimum business credit score is 475; for company directors, it's about 500 (it could be less if you're a homeowner).
- Operate in a non-excluded industry (some lenders won’t lend to the likes of gambling-related businesses, debt collection companies and tattoo studios).
How to apply for a business loan
You can get a small business loan with banks, specialist online lenders or through a finance broker.
Specialist lenders are known for providing fast approval. For example, you could be pre-approved for finance within a few minutes and unconditionally approved within 24 hours.
That’s because these lenders often require minimum information and documents to assess your application.
What you'll be asked about your business
Its location, structure, monthly and annual turnover, how long you’ve been operating for and in what sector.
What you'll be asked about the loan you want
How much you want to borrow and for how long (your loan term), plus details of the asset you wish to purchase (if applicable).
Financial documentation you’ll need to provide
Business bank statements from the last six to 12 months, BAS statements and/or tax returns (optional), ABN registration information.
For loans above $150,000, you'll also need to provide
Profit and loss statements, business balance sheet, a business plan outlining how you will use the funds to generate revenue, plus details of business expenditure and how you plan to repay the loan.
What are the most common business loan purposes?
According to Money.com.au borrower data, the top reasons businesses in Australia apply for a loan are: Buying vehicles or transport (41%); day-to-day capital (29%); machinery or equipment (10%); other purposes e.g. office fit outs, purchasing another business (20%).
The average small business loan amount in Australia is $94,845, with loans for buying existing business ($261,944) and machinery or equipment loans ($181,434) attracting the largest amounts.
Ready to compare business loans?
Get your best offers from multiple lenders. There's no obligation and checking your rates won't impact your credit score.
