How to choose a business loan
What you can use the money for
How to choose a lender and apply
Why lenders need bank statements
Business loan interest rates and terms
Business loan success stories
Small Business Loans in Australia
A small business loan in Australia is a type of business loan used by small and medium-sized businesses. SMEs generally need to have at least 6 months' trading history and a minimum monthly revenue of $5,000 to qualify. Unsecured loans up to $150,000 can be approved and funded on the same day by only providing your bank statements.
The best small business loans are fit for purpose, whether you need fast access to working capital or to pay one time expenses. Learn how to compare and find your business loan below.
How to choose a business loan
What is a small business loan?
A small business loan is a term loan that allows a business to borrow an amount of money based on the amount of revenue generated by the business. The business will then repay the lender over an agreed term. Loan amounts can range anywhere from $5,000 up to $500,000, with loan terms between one month and five years.
There are two types of small business loan:
A business asset or your residential property is used to guarantee the loan
You do not offer any security as a guarantee on the loan
You can read all about how to apply for a loan without security in our unsecured business loans guide.
What types of SMEs use business loans?
Small business loans are used by all kinds of Australian businesses. In fact, over 70% of Australian businesses have ‘credit’ of some form. These loans are regularly used by seasonal businesses and SMEs that require fast access to working capital.
Below are the top 10 reasons Australian SMEs use these loans:
- Increase working capital
- Buy inventory and stock
- Buy equipment or machinery
- Smooth out seasonal cash flow
- Pay staff or employ new staff
- Advertising and Marketing
- Buy a competitor out
- Move premises
Pay BAS or Tax Payments
In some cases, you may find certain types of business loan more suitable than others.
For example, if you are purchasing a vehicle for business use, you might consider a chattel mortgage. This is a type of business vehicle finance which provides unique tax benefits to businesses.
For larger purchases relating to your business, such as machinery or an office fit-out, you may find asset finance offers better rates or terms than other types of business loan.
If you'd like to learn about the tax benefits of various types of equipment and asset finance in Australia, you can read our chattel mortgage vs lease vs hire purchase comparison guide.
How to choose a business loan lender
You can apply for a small business loan with banks or specialist online lenders.
If you choose to apply with your bank, the application and approval process will often be much more complex and time-consuming than other lenders. Additionally, banks often do not like to provide finance to SMEs, or approve finance for smaller amounts. If you’re applying for less than $100,000 you may wish to look first at a specialist lender.
Specialist lenders are well-known for providing fast approval. If you choose to apply with a specialist lender, you can apply online and often be approved the same day, as these types of lenders will only require your business bank statements to assess your ability to repay the loan amount.
Business loan brokers can be found all across Australia — if you need a business loan and would like professional assistance in comparing your options, you can find business finance brokers in all major Australian cities; Sydney, Melbourne, Brisbane, Perth, Adelaide, Newcastle, and Canberra.
What is the minimum I will need to apply?
The minimum requirements for a small business loan in Australia are:
- An ABN
- A GST-registered business
- Permanent Citizenship or Residency
- A minimum business-operating time of six months
- Business bank statements
If you require more than $150,000, you will need to also provide:
- Profit and Loss Statement — (provided by your accountant)
- 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 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
Why do lenders need bank statements for a business loan application?
Lenders will use your bank statements to assess your level of risk as a borrower. It’s vital that your business bank statements are complete and unaltered. Lenders evaluate your business bank statements during the approval process to determine:
- Your business revenue
- How much you can borrow
- Daily balance and monthly average
- Your ability to service the loan based on business revenue
- The frequency of deposits and size of your customer base
- Any payments from the business to cover other debts or loans
Lenders need to review accurate and complete bank statements due to the risk in lending large amounts of money to small businesses. Access to your bank statements allows a lender to assess your ability to meet your regular repayment obligations and repay the full loan amount plus interest.
There are a number of reasons lenders need to see bank statements, for example:
- A business applies for a loan amount which matches their monthly revenue
- However, the business also spends a large portion of its profits servicing other loan amounts and to finance its employees' personal expenses
- While the business can afford the loan amount in relation to its monthly revenue, it cannot afford to meet the regular repayments due to high expenditure
- The lender cannot justify approving the loan as the closing balance indicates an inability to service the loan amount
Business loan lenders allow you to apply online, and can automate the bank-statement analysis process, which enables them to provide faster approval, often within 24 hours.
How to avoid being declined
There are many reasons you may be declined for a small business loan, and ensuring you apply for the right type of business loan (and with the correct documentation) is the easiest way to avoid this.
Here are the top 5 reasons applications are declined:
- Your business financials do not illustrate an ability to service the loan amount
- A business-owner or director has bad credit
- Your business revenue is too dependent on a small number of customers
- The outlook for your market sector is poor
- Your business hasn’t been operating for long enough
How much can I borrow?
In Australia, you can borrow between $5,000 and $500,000 on a small business loan. The average loan amount for SMEs is $30,000.
If you want to quickly compare repayments and see how much you can afford to repay, you can use our free Business Loan Calculator.
Minimum and Maximum Amounts
Important: The actual amount you can borrow will vary between lenders
What are the rates?
The interest rates on a small business loan in Australia range between 5% to 30%.
The interest rate applied to your loan will depend on the amount you wish to borrow, the lender you apply with, and the profile of your business. For example, a business with a strong, consistent trading history and stable revenue will likely be offered a lower interest rate than a new business with irregular profits.
Lowest business loan interest rates in Australia
The lowest business loan interest rates will be applied to business loans secured against property, and where the asset being financed will be used as security. Business loan interest rates start from around 5%. For business finance with no security offered, rates start from around 12%.
A secured loan reduces the level of risk presented to a lender when approving your application for finance, and reduced risk as a borrower will result in lower interest rates on a business loan.
Compare business loan interest rates
|type of business loan||lowest fixed interest rates|
|Unsecured Business Loans||From 12.00%|
|Small Business Loans||From 5.00%|
|Business Line of Credit||From 5.00%|
|Business Overdraft||From 14.95%|
|Equipment Finance||From 4.49%|
|Business Credit Card||From 12.10%|
|Invoice Finance||From 1.5%|
|Traditional Bank Loan||From 4.05%|
|Personal Loan||From 6.99%|
|Fit-Out Finance||From 7.49%|
|Bad Credit Business Loan||From 15.00%|
Types of business loan interest rates
There are three main ways lenders will advertise — and apply — interest on business loans:
- APR (Annual Percentage Rate)
- Simple Interest Rate
- Factor Rate
The type of interest applied will make a significant difference to the total amount you will repay.
It’s important to make sure you understand how you are being charged for your business loan — an APR will allow you to easily compare lenders.
APR (Annual Percentage Rate)
Annual percentage rate (APR) indicates what percentage of the loan you’ll pay each year, including all payments and fees relating to the loan when calculating the figure. APR is ideal for borrowers, as it provides an accurate repayment figure which they can use to compare offers by various lenders.
Simple Interest Rate
Simple interest rates are the quickest way of calculating the interest amount on a loan. Simple interest is determined by multiplying:
- The loan amount
- The interest rate
- The length of the loan
However, a simple interest rate doesn’t take into account any fees applied to the loan, and therefore makes it less beneficial to borrowers as they cannot accurately compare lenders as they would with an APR.
Lenders may also advertise a factor rate instead of an interest rate. Unlike an interest rate, which is calculated monthly on your reducing loan balance, a factor rate is a fixed amount calculated on the full balance when you take out your loan.
A factor rate is expressed as a multiple of the loan, rather than a percentage.
The factor rate amount will be added to your loan principal and remain fixed for the loan term. This means that even if you make extra payments on the loan balance, the amount of interest you pay won’t change.
Fixed and variable interest rates on business loans
With the exception of a factor rate, which is always fixed, business loan interest rates may be advertised as either fixed or variable. Each has its own pros and cons:
- Fixed-rate interest — A fixed rate will stay the same for the entire term of the business loan. A fixed rate indicates that whether interest rates rise or fall, you will still pay the initial agreed amount of interest. Often these business loans may include early-payment penalties.
- Variable-rate interest — A variable rate is subject to change across the term of the business loan. If interest rates fall, you may be in a better position than when you initially agreed to the loan. If interest rates rise, however, you will be obligated to pay a higher rate of interest.
Fixed-rate interest on business loans can help estimate the true cost of the loan over the term. If you are considering a business loan with a variable interest rate, it’s important that you first assess your ability to meet loan repayments should the interest rates increase over time.
How lenders apply interest to business loans
Lenders assess your loan application on your ability to repay the loan amount, and the level of risk you present as a borrower:
- If you have a clean credit score, a successful business, and are borrowing a reasonable amount of money, you will present a low level of risk.
- If you have a poor credit score, a struggling business, and are borrowing a very large amount of money, you will present a higher level of risk.
Factors that influence business loan interest rates can include:
- Type of business finance you are applying for
- Term of your business loan
- Amount of money you are borrowing
- Value of the collateral — if any — you are providing as security
- Age of your business
- Trading history of your business
- The lender you are applying with
- Whether the rate is fixed or variable
How to get the lowest interest rates on a business loan
You can access the lowest interest rates on business loans by considering each of the assessment factors and ensuring you present as little risk as possible in each of them. Below is a guide on how to identify risk in your application to ensure you qualify for the lowest business loan interest rates.
Risk Assessment Factors
|Risk Factor||Lower Risk||Higher Risk|
|Collateral||Secured with property||No security|
|Guarantors||Low-risk guarantor||No guarantor|
|Business History||Established business with steady profits and stable customer and client relationship||New business or seasonal business with fluctuating profits or a very small pool of clients|
|Borrower Profile||Clean Credit History and established history of repaying any previous loans||Defaults, Part IX or Bankruptcy|
|Type of Business Loan||Secured loans used to purchase reclaimable assets||Cash loans and unreclaimable-asset loans|
|Use for the loan||Finance business vehicles or high-value, long-life assets||Repay business debts|
How to compare business loan interest rates
A low interest rate is a good indicator of the total cost you will pay on a business loan over the term — however, it’s not the only factor that will influence the true cost of a loan.
To ensure payments are kept to a minimum over the entire term of the loan, you will need to consider other factors that can affect the total cost of the loan to your business, including:
- Loan establishment fees
- Monthly or annual fees
- Late-payment penalties
- Early repayment penalties
In the table below, we’ll look at three loans of the same amount, with the same loan term and repayment frequency. The difference between the three is the advertised interest rate type.
You can see below how the application of each interest type really impacts the actual APR and the total amount you are paying for your loan. In each example, the loan term is 9 months, and repayments are made monthly.
Factor Rate vs Simple Interest vs APR
|Interest Type||Rate||Loan Amount||Fees (3%)||Actual APR||Total Cost|
(Interest + Fees)
You can use the Factor Rate to APR converter to quickly compare advertised interest rates on various business loan offers.
Important: This is an example and actual rates may differ
What are the terms?
Terms on a small business loan can range from one month up to five years. The average term is around 12 months — a short-term business loan is often used to help a business with working capital, while a longer term can be used for significant purchases — e.g. vehicles, machinery, equipment.
Minimum and Maximum Terms
How long should you take business finance for?
Business loans between 1 month and 3 years are often used by established businesses to cover sudden expenses — e.g. buying extra stock, paying a tax bill, or covering fluctuations in revenue — and can be either secured or unsecured.
Long-term business loans (loans of three years or more) are often used for financing major business purchases, such as vehicles, assets, and equipment, and will generally require security by the lender.
Here’s what you need to know about long-term finance:
- 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 with a shorter term.
- Some long-term facilities have break penalties, which means you could pay substantial fees if you wish to make additional payments and terminate the loan 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 from the lender first, which could be a slow or complicated process.
Long-term business finance may provide lower interest rates than short-term loans, but it's important to make sure you fully understand the total amount of interest you'll pay over the term.
Small Business Loan Case Study
Type of Business: Retail Loan Amount: $30,000 Lender: Online
A retail business has been in operation for three years.
In previous years, the business owner has seen a consistent spike in sales between December and January which resulted in the store’s entire inventory being sold out.
Based on this reliable trading pattern and projected revenue over the holiday period, this year the business owner is confident they can purchase an additional $30,000 of inventory and sell it to increase their profits.
The business applies for a small business loan online, and illustrates their sales pattern and revenue to their non-bank lender. The lender agrees to fund the business so it can purchase additional stock, which it is then able to sell for an increased total annual profit.
The business owner purchases the inventory, which is sold as predicated. The business then comfortably repays the loan amount in full, and the retail store has boosted cash flow for the coming year.
Small 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 finance during the lifetime of their business. Small 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.
- 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 obtained from banks for low interest rates
- Can be obtained from online lenders for fast approval timeframes
Small business loans FAQ
How does a business qualify?
A business can qualify for a small business loan if they can provide a lender with bank statements that illustrate their ability to comfortably repay the loan amount.
Do I have to provide bank statements?
Yes, you have to provide bank statements to a lender when applying for a small business loan. This will allow a lender to quickly assess your business revenue and determine if you can comfortably repay the total loan amount and interest.
What is the difference between a small business loan from a bank and a specialist lender?
The main difference between a small business loan from a bank is that the application and approval process will take much longer than through a specialist lender. The main benefit of applying through a bank is a slightly lower interest rate.
What is the average interest rate on a small business loan?
Currently, small business loan interest rates in Australia range between 5% to 30%. Due to the number of lenders and loans available in Australia, the average interest rate varies. This is why it is important to ensure you compare lenders to find the best rate for your business.
Do you need a deposit for a business loan?
No, you do not need a deposit for a business loan. It’s important to note that a deposit is not the same as security (collateral) and you will need to provide collateral if applying for a secured business loan.
Can I get a small business loan with bad credit?
Yes, you can get a small business loan If you have a poor credit rating. To learn how to apply for a loan if you have defaults or are an ex-bankrupt, read our bad credit business loans guide.
How long does approval take?
If you apply for a small business loan online with a specialist lender, you can often be approved for finance in under 24 hours.
Can a small business loan be unsecured?
Yes, a small business loan does not always require security. If you do not have collateral or do not want to provide security on a business loan, you can read our unsecured business loans guide.
Can a business make early repayments?
In most cases, lenders will allow you to repay your loan early without any penalties or fees. If you plan on repaying your loan amount early to reduce the amount of interest you pay, check with your lender to ensure you won’t incur any fees or penalties for doing so.
How can I compare lenders for a small business loan?
When comparing lenders, there are three important aspects of a small business loan to consider:
The loan amount
The interest rate
The fees or charges for your loan