Shaun McGowan
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. Small business 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.
In this small business loans guide, you’ll learn:
- What business loans are available
- What you can use the money for
- The different types of business finance available in Australia
- How lenders assess a business loan application
- How to prepare a business case
- How to compare lenders and choose finance for your business
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. A small business loan 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 loans:
- Secured - a business asset or your residential property is used to guarantee the loan; or
- Unsecured - 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.
Secured small business loans present less risk to a lender, and will often have lower interest rates than an unsecured loan.
Who uses small 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 small business loans:
- Increase working capital
- Buy inventory and stock
- Buy equipment or machinery
- Smooth out seasonal cash flow
- Pay staff or employ new staff
- Renovations
- 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.
A chattel mortgage offers considerable tax benefits for a business financing a vehicle predominantly for business use (at least 51% business use).
Where can I apply?
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 small business loan lender.
Specialist lenders are well-known for providing fast small business loan 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 small business loan lenders will only require your business bank statements to assess your ability to repay the loan amount.
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
- Profit and Loss Statement - (provided by your accountant)
- ATO Portal access
Do I qualify for a small business loan?
Qualifying for a small business loan is very simple - if your business bank statements illustrate an ability to comfortably repay your desired loan amount within the agreed loan term, you will qualify for approval. It’s that simple!
If you are applying for an amount up to $150,000, you will likely be approved the same day. If you are applying for more than $150,000, you will need to demonstrate to a lender that your business revenue is sufficient to repay the higher amount, and that your business revenue will remain stable for the term.
How to avoid being declined for a small business loan
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 for a small business loan 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 for a small business loan, you can learn about the process and how to choose the right lender in our bad credit business loans guide.
A business plan can be a powerful tool in demonstrating to a lender how you will use and repay the loan amount.
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.
Small Business Maximum and Minimum Borrowing Amounts
| Minimum Amount | Maximum Amount |
|---|---|
| $5,000 | $500,000 |
Important: The actual amount you can borrow will vary between lenders
What are the interest rates for a small business loan?
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.
Small Business Loan Interest Rates
| Loan Amount | Interest Rate | |
|---|---|---|
| Lender 1 | $30,000 | 9.90% |
| Lender 2 | $150,000 | 15.00% |
Important: This is an example and actual rates may differ
What are the terms for a small business loan?
Terms on a small business loan can range from one month up to five years. The average term on a small business loan in Australia is around 12 months - a short-term small business loan can help your business with working capital, while a longer term can be used for bigger purchases.
Small Business Loan Minimum and Maximum terms
| Minimum term | Maximum term |
|---|---|
| 1 month | 5 years |
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
Small business loans in Australia allow borrowers to access funding from their bank or lender, with the approved amount dictated by the revenue of the business. Banks will offer lower rates, while specialist lenders offer same-day approval. The type of lender most suitable for you will depend entirely on your business.
In summary, small business loans:
- Are available from banks and specialist lenders
- Only require your bank statements to assess approval
- Can range from $5,000 to $500,000
- Are offered between one month and five years
| Pros | Cons |
|---|---|
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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.
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.
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.
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.
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.
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.
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.
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.
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.
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