How to get a business loan: the ultimate guide
Whether you're running a small business, a big company or a new start-up, there's a good chance that you'll need some extra funding at some point along the way.
A business loan can help.
What is a business loan?
A business loan is a popular funding option that can help grow your operations and meet everyday financial needs. Like personal loans and car loans, taking out a business loan involves borrowing money and then paying it back in instalments along with interest paid at a fixed or variable rate. Business loans can be secured against assets, or taken out unsecured, though these generally have higher interest rates.
Do I need a business loan?
If you're considering a business loan, you might need a top up to your business bank account.
The most common reasons businesses seek loans include purchasing essential equipment or vehicles, managing payroll obligations, addressing cash flow challenges, funding expansion plans through new hires or workspace upgrades, and maintaining adequate inventory levels.
Before jumping into a loan, consider whether alternatives might better suit your needs, such as a business credit card, a business overdraft, invoice financing, or utilising funds from your business savings account.
Business loan eligibility
Common eligibility requirements include:
- Active Australian Business Number (ABN) or Australian Company Number (ACN)
- Minimum time in business (usually 6 months to 2 years)
- Minimum annual turnover (often at least $40,000)
- Sound financial history and credit record
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Types of business loans and lenders
If you’ve ever taken out a home loan or a personal loan you’ll know just how many different types of each loan are available. The same is true for business loans.
A few of the most common types of business loans are offered by banks and credit unions, as well as leading fintechs.
Banks and credit unions
- Includes major banks like ANZ, Commonwealth Bank, NAB and Westpac, plus challengers like Bankwest and Suncorp.
- These offer competitive rates and face-to-face service.
- They provide greater options for startups and comprehensive banking packages
Leading fintechs
- Fintech lenders include Lumi, Prospa, Bizcap, OnDeck, Octet, and ScotPac.
- These lenders typically offer faster applications, competitive rates, and innovative loan solutions.
Comparing loan fees
A business loan comes at a cost, including the interest rate charged and regular loan fees.
Be sure to account for these costs before you apply:
- Interest rates (may be expressed weekly, fortnightly, monthly, or annually)
- Application and valuation fees
- Ongoing service fees
- Late payment and exit fees.
Business loan features
Costs are one thing, and for many borrowers, they’re going to be the deciding factor when it comes to making a choice. But the features of a business loan can also separate it from the pack.
Here are a few to consider:
Extra repayments and redraw facility
Some lenders allow borrowers to make extra repayments, which can be great if you’re looking to pay the loan off as fast as you can. This feature could be especially useful on large business loans up to $100,000.
And if that sounds good, it may also be worth looking out for a business loan that comes with a free redraw facility as well. That way, if you do make extra repayments, you’ll be able to redraw them at any time and use them for other purposes.
Flexible repayments
Repayments are usually made weekly, fortnightly or on a monthly basis. If you want to make your repayments on schedule that best suits your business, then it’s worth looking for lenders who offer flexibility and a variety of options.
Funding speed
Whether you need funding in a hurry, or you’d just like to avoid a lengthy application process, finding a lender who provides speedy applications could be worth keeping an eye out for. In fact, many online lenders provide both of these possibilities.
How to Apply
Most loan applications require a driver's licence, ABN or ACN, and financial records. Startups may also need to provide a business plan. Application times vary significantly. For example, online lenders often provide 5-minute applications with 24-hour funding, while traditional banks may take longer but offer more comprehensive support.
Ready to start your search? Compare a range of business loans at the business loans comparison hub to find the right match for your business needs.
What's the difference between secured and unsecured
Secured business loans use assets as security and generally offer lower interest rates with higher borrowing limits. In contrast, unsecured business loans require no security but come with higher interest rates, typically ranging from $5,000 to $500,000. For specific needs, consider equipment finance or short term business loans.
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