Gone are the days of walking into a branch to take out a loan, because finding the best short term business loan for your needs could be as simple as filling out an online application. Let’s step back a minute though, because with so many different loans on the market featuring a wide variety of rates, fees and features, nailing down the right loan to suit your needs requires narrowing down the field. That’s why we’ve put together some handy information you’ll want to know before you begin to compare short term business loans.
What is a short term business loan?
A short term business loan is exactly as advertised: a business loan that can be taken out over a short period, generally 3- 24 months. As you might expect, short term loans also tend to have faster repayment schedules, so you may need to pay interest on a daily or weekly schedule instead of fortnightly or monthly. Aside from that, they’re very similar to a regular business loan because they can be used to fund a whole range of purposes including:
- Covering unexpected costs
- Filling seasonal cash-flow holes
- Paying for emergency repairs
- Awaiting a client to pay an invoice
Short term business loan fees and features to look out for
There are a fair few things to think about when it comes to comparing short term business loans including rates, fees and other features, all of which can have a big impact on the amount you pay over the course of the loan.
The interest you end up paying on your short term business loan is likely to be the biggest cost you’ll fork out, so snagging a loan with a low rate can make all the difference. Short term business loan rates can vary significantly between lenders though, as can how they’re expressed, because some lenders will display rates as a daily, weekly, fortnightly, monthly or annual figure. That’s why it’s important to make sure that you’re comparing apples with apples when it comes to looking at rates.
It’s also common for some lenders to offer interest rates on a business-by-business basis, meaning you’ll be offered a personalised rate depending on a number of factors including your loan size, loan period and your financial history.
Like any loan, there are likely a few fees you’ll need budget for. Some of the most common fees you might be charged include:
- Establishment fees: Also known as application or upfront fees, establishment fees are one-off payments you are charged at the start of the loan which cover the cost of setting up your loan file with the lender.
- Service fees: These are also known as ongoing fees and are charged on either a monthly or annual basis or the life of the loan.
- Late payment fees: Many lenders charge late payment fees if, you guessed it, you fall behind on your repayments.
Depending on the type of loan you choose, you may have an extra repayments option - this allows you to make extra repayments to your loan. Not only will this help you save on interest, you’ll be paying your loan off faster. However, some lenders may charge a fee to do this and can set a limit on how much extra you can repay.
Another feature your loan may come with is a redraw facility. With a redraw facility, you’ll be able to withdraw any of your extra repayments, which you can put towards an unexpected bill or other unforeseeable cost.
Banks vs online lenders
Fees and features are one thing, but when it comes to choosing the right short term business loan it’s worth knowing the difference between the different types of lenders on the market. Business loans generally fall into two different categories: those available from banks and those available from online lenders, with each having their respective benefits and drawbacks.
Banks and credit unions
Chances are you’re already familiar with many of the big name banks and credit unions which offer short term business loans to Australian businesses, including ANZ, CommBank, NAB, Suncorp, St.George and Westpac.
- Benefit: Convenient to stick with a lender you have an existing relationship with
- Benefit: Banks and credit unions often offer more competitive rates
- Drawback: The application and approvals process can be time consuming
- Drawback: Banks may be stricter with vetting business applicants
Springing up in the last ten years, Australia now has a heap of new up-and-coming lenders offering more competition in the business loans space. These include names like Prospa, Moula, Capify, Get Capital and many more.
- Benefit: Fast online applications and funding
- Benefit: Greater access to unsecured business loans
- Drawback: Interest rates can be steeper
- Drawback: Don’t always offer the opportunity to speak face-to-face
How much can I borrow with a short term business loan?
While every lender will need to do their due diligence in order to make sure your business satisfies their lending criteria and you can afford to pay back the loan, businesses will generally be able to take out short term business loans from as little as a few thousand dollars all the way up to hundreds of thousands.
To give you an example, the short term business loans in the table above typically start from around $5,000 and go up to $500,000.