How to get a business loan: the ultimate guide to searching and applying

Whether you’re running a small business, a big business or a newly started business, there’s a good chance that you’ll need some extra funding at some point along the way.

That’s where a business loan can help out. A popular funding option among all types of Aussie businesses, business loans are designed to provide the cash injection to help grow your operations and meet your everyday financial needs.

But business loans are a little bit different to other loans you might be used to like a car loan, so if this is your first rodeo, then it’s important to be crystal clear about how they work. To give you a helping hand, we’ve put together all the information you’ll need on how to get a business loan: from why you’d get one in the first place, to finding the right loan and then actually applying.

Do I need a business loan?

Chances are you’ve already got an idea in your head about what you need some extra funding for. But narrowing that thought down will not only be essential to deciding whether you need a set $20,000 business loan or a revolving line of credit, it could also come in handy during the application process.

Some of the most common reasons small businesses take out loans are:

  • To make big ticket purchase like business equipment or vehicles
  • To pay wages
  • To manage cash flow
  • To expand operations by hiring new staff or moving to new space  
  • To pay for inventory

A business loan isn’t going to be the right solution for every situation though. That’s why it may also be worth considering a business credit card, a business overdraft attached to a business bank account, or using any funds you may have stashed away in a business savings account.

Before you start the process of comparing business loans, it’s also crucial to work out whether your business is going to be able to afford one in the first place and whether its likely to meet the eligibility requirements. So crunch your numbers to ensure that you’ll be able to make the repayments on any loan you apply for, and see if your business would meet the criteria below.

Business loan eligibility

The criteria you’ll need to meet will vary between lenders, but some of the more common eligibility requirements you’ll need to fulfil to include:

  • Fully registered: Sounds simple, but the majority of lenders require borrowers to have an active Australian Business Number (ABN) or Australian Company Number (ACN).  
  • Minimum time in business: Many providers only lend to established businesses, which means that you’ll need to have been trading for anywhere between 6 months and 2 years (at the very least) to apply for a loan. That doesn’t mean there aren’t funding options for startups and new businesses, but the application and approval processes tends to be more stringent.  
  • Minimum turnover: Lenders need to be sure that you’ll be able to pay back the loan which is why many set minimum annual turnover requirements. These vary between lenders, but don’t be surprised to need a minimum annual turnover of at least $40,000.  
  • Sound financial history: Your businesses previous credit history is also likely to be one of the factors lenders compare when assessing your eligibility for a loan. It’s also worth noting that an outstanding tax bill with the ATO could also impact your ability to take out a loan.

How can I compare business loans, and what should I look for?  

Ok, you’ve narrowed down the reason you need your business loan and whether you’re likely to be eligible for one. Now it’s time to find the right match. But when it comes to comparing business loans, how do you make the choice between different business lenders and types of loans, and what are some of the main components you should be looking out for? 

Who are the different business loan lenders?  

Once upon a time a business owner would need to walk into a bank branch in order to take out a loan, but not anymore! Borrowers now have a range of choices when it comes to taking out a business loan, and they generally fall into two main lender categories:

Banks and credit unions

Banks and credit unions are likely to be the lenders you’re most familiar with, especially if you already have a business bank account or business credit card set up with one of them. These include the four major banks in ANZ, Commonwealth Bank, NAB and Westpac, as well as players like Bankwest, St.George and Suncorp.

Aside from familiarity, taking out a business loan with a bank or credit union can have its benefits, including:

  • Access to competitive rates
  • Greater options for startups and new businesses
  • Face-to-face service in branch
  • Ability to have all your business banking needs in one package

Online Lenders

The other option for businesses is to compare loans with some of the new up-and-coming fintech business lenders which are predominantly based online. These online lenders have really sprung up in the last few years, and you might have already heard of the likes of Prospa, Moula, OnDeck and GetCapital to name a few.

Some of the benefits of comparing business loans with online lenders include:

  • Low interest rates
  • Fast applications and approvals
  • Access to unsecured loan options

What are the different types of business loans?

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, and the same is true for business loans. Some have different requirements and some are designed for specific needs, but a few of the most common types of business loans include:

Secured business loans

Perhaps the most popular type of business loan, secured business loans could be useful funding options for businesses that are happy to use an asset (like property, a vehicle or a piece of equipment) to secure the loan. Because they’re secured and a lower risk to lenders, secured business loans tend to come with the advantage of lower interest rates, which may be appealing for businesses wanting to keep their repayments as low as possible.  

Unsecured business loans

No prizes for guessing how unsecured business loans contrast from secured business loans, because the simple difference is that unsecured loans require… well, no security. That could be a major plus for business owners who aren’t comfortable with using their own homes, cars or even the business itself as collateral against the loan. The downside is that lenders view these to be riskier loans, which is why interest rates tend to be higher than with secured business loans. They also tend to have lower maximum lending limits, with options ranging from $5,000 or $10,000 business loans, up to around $500,000. If you need more than that, you'll likely need something to use as security.

Equipment finance business loans

If you’ve got a specific piece of equipment (like a new coffee machine for your cafe or computers for your office), or perhaps a new vehicle (like a ute or van) that you need to purchase for your business, then a specialised equipment finance business loan could be right solution.  

Short term business loans

Whether you need to make some emergency repairs or just need some funds to cover you until your invoices are paid, a short term business loan could be a great option for businesses in need of a small funding injection, fast.

Rates and fees

If you’re running a small business, or any business for that matter, you’re not going to want to pay more than you need to for anything - especially your business loan. Not when the savings you make could be put back into the business. That’s why there are two different major costs that need to be at the top of your watch list when you’re ready to compare business loans: the interest rate and any fees.

Business loan interest rates

You may be used to paying an interest rate on your home loan or car loan, and like those loans, business loans come with either a variable or fixed rate. However, business loan rates also work a bit differently.

Instead of your interest being displayed as an annual figure (as it is with home loans), business loan interest rates can be expressed as weekly, fortnightly, monthly or annual. For example, you might see a business loan offer with an interest rate of 0.67% per fortnight, or 0.90% per month.  

And some lenders don’t even offer an interest rates up front. Instead, you’ll need to complete an application after which you’ll be offered an interest rate customised to your business.     

At the end of the day, while it might be a little bit more difficult to compare interest rates expressed over different time periods, most borrowers are still going to want to get the best rate possible to reduce the interest they pay. That’s why Mozo’s business loans comparison table, in which you can compare a bunch of different rates and offers in one place, can be such a handy tool.

Business loan fees

The other major cost to look out for when comparing business loans is fees. Borrowers often make the mistake of solely focusing on the best interest rate they can get, but fees shouldn’t be neglected because they can really add up over time. Some of the more common fees you’ll want to compare include:

  • Application fees: Some, but not all, lenders will charge an upfront fee when applying for a business loan. These can be a dollar figure, or a percentage of the total loan amount you borrow, but given they can be hundreds and sometimes even thousands of dollars, they’re certainly worth watching out for.
  • Valuation fees: Charged by some lenders for borrowers taking out secured business loans, these are the fees charged to (you guessed it) value the collateral you’re using against the loan.  
  • Ongoing fees: Otherwise known as a service or lender fees, these are generally charged for administration purposes and the general upkeep of the loan.
  • Late payment fees: These are the fees charged if you’re late making one of your repayments.
  • Exit fees: You may be charged a fee for the privilege of paying out the full balance of your loan before the loan period is over.

Handy Features  

Costs are one thing, and for many borrowers they’re going to be the deciding factor when it comes to choosing a business loan, but there are a number of common business loan features which may be worth considering.  

Extra repayments and redraw facility

Some lenders allow borrowers to make extra repayments on their business loans which may be a great option to have 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, which you might be paying off for a long time otherwise. 

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.

Flexibility of repayments

When it comes to making repayments on your business loan, you’ll generally need to make them on a weekly, fortnightly or monthly basis. Although, some lenders do require daily repayments! So if you want to make your repayments on schedule that best suits your own business then it will be worth looking for lenders who offer flexibility and a variety of repayment options.

Funding speed

Whether you need funding in a hurry, or you’d just like to avoid the paperwork of a lengthy application process, finding a lender who provides speedy applications and funding could be a feature worth keeping an eye out for. In fact, many of the new online lenders provide both of these possibilities as you’ll see further below.  

How do I apply for a business loan?  

One you’ve settled on a loan you like, it’s time to apply. Thankfully for borrowers, a lot of the hassle has been taken out of the process of applying for a business loan, with many lenders - especially the online lenders - offering much simpler, speedier applications. For most applications, you’ll just need:

  • A drivers licence
  • Your Australian Business Number (ABN) or Australian Company Number (ACN)
  • Financial data (including bank account and tax records)

And in some cases, especially for start ups or newer businesses, you might also need to provide a business plan which outlines your position and how you intend to use the loan funds.

Of course, the application process will differ between lenders and the type of business loan you choose, with banks often taking a bit more time with applications and funding. But depending on the loan you apply for, here are the best case scenarios for how long the process could take.  

  • Applications: As quick as 5 minutes
  • Approval speed: As quick as 10 minutes
  • Funding feed: Received in as little as 24 hours from approval

So what are you waiting for? If you’re ready to start searching for a business loan to match your businesses’ ambitions and needs, then the first place you’ll want to start is Mozo’s business loans comparison hub where you can filter and compare a range of loan offers.

Business Loan Comparison Table - rates updated daily

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Let’s help find you a great business loan...
  • Line of Credit

    Unsecured business funding up to $500K. Start the online application process in just 5 minutes, and get access to funds within 24 hours once approved. Great for ABN registered businesses with an annual turnover of $200K+.

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    Instantly, once approved
  • Short Term Business Loan

    Unsecured business loans from $10,000 - $250,000, over 6 to 24 months. Online application takes only 10 minutes and you'll know if you're approved within hours. Apply now.

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  • Lumi Lux

    Lumi Lux™ is an innovative rate-reducing business loan that rewards customers for a good repayment history over the loan term by dropping interest rates by 25 basis points every six months (T&Cs apply). The loan is for more established businesses with minimum $2M revenue.

    Interest Rate
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    from 14% to 20%
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  • Invoice Finance

    hornmoney's invoice finance system connects to your accounting software and draw down funds. There are no lock-in contracts. Get cash in your account in as soon as 24 hours. Paperless and hassle-free application. No hidden fees.

    Interest Rate
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    On application, from 6%, 3% interest rate for the first 90 days.
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