What business loans are available
What you can use the money for
How lenders assess a business loan application
How to prepare a business case
How to compare lenders and choose finance for your business
Small Business Loans in Australia
A small business loan is a type of business loan specifically for small and medium-sized businesses. Generally you need to have been trading for at least 6 months and have a minimum monthly revenue of $5,000. Loans up to $150,000 can be approved and funded on the same day with only providing your bank statements and no security.
The best small business loans available are perfect if you need fast access to working capital or to pay one time expenses.
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 type of SME's uses Business Loans?
Over 70% of Australian businesses have ‘credit’ of some form. Small business loans are used by all kinds of Australian businesses. They are incredibly popular with seasonal businesses, or 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
For other items - e.g. a car for business purposes - you would want to use a chattel mortgage, a particular finance with tax benefits for business. For larger pieces of equipment for your business, or a fit out, you may wish to consider equipment finance.
If you'd like to learn about the tax benefits of various types of equipment 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 and more often than not, banks do not like to fund smaller amounts to business. 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.
You can apply for a Small Business Loan online with a number of specialist lenders. You can see how each business finance lender compares in our reviews:
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 many will offer same-day approval on an application.
When applying 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
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
- Daily balance and monthly average
- Your ability to service the loan based on business revenue
- How much you can borrow
- 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 repay the full loan amount plus, and meet your regular repayment obligations.
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 employee’s 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 avoiding this can often this can be as simple as ensuring you apply for the right type of business loan and with the correct documentation.
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
If you have a poor credit rating but still need to apply, you can learn about the process and how to choose the right lender in our bad credit business loans guide.
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 small business is $30,000.
If you want to quickly compare repayments, 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.
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 loan can help your business with working capital, while a longer term can be used for bigger purchases.
Minimum and Maximum Terms
How long should you take business finance for?
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 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
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 your revenue - and can be either secured or unsecured. We cover these types of loans in depth in our Guide to Short-term Business Finance.
Small Business Loan Case Study
Type of Business: Retail
Loan Amount: $30,000
A retail business has been in operation for a number of 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 takes out a small business loan to purchase additional stock, which they are then able to sell for an increased total annual profit. The business owner then comfortably repays the loan amount in full, and the retail store has boosted cash flow for the coming year.
Just need access to funding for a rainy day?
If you’re not looking to fund a one-off purchase or expense, you may wish to consider a different type of small business finance. You may wish to consider either:
Each of these types of business funding will allow you to have access to funds should you need them, the benefit being you do not need to pay anything on the undrawn amount.
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 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
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 - or 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