Guide to Understanding Small Business Loans



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For small and medium-sized Australian business owners, finding good financing options to start or to grow your business can be tricky. There are hundreds of lenders out there, but terms offered might be extremely difficult to comprehend.

Many banks and other financial institutions might not be willing to lend you the amount of money that you need to access to begin your business or make the changes you need to keep your business afloat. Online lending options can bring more visibility to this process.

However, small business owners who do not take time to carefully research their financing options often times end up with a loan with terrible interest rates or terms and conditions. Additionally, small business owners often borrow for much less than what they originally hoped to secure.

This not only forces you to change you’re projections for your business, but it may also leave you looking for another loan to make up the difference. Borrowing from lots of different sources is dangerous for any small business and can complicate your financial situation.

This not only forces you to change projections for your business, but it may also leave you looking for another loan to make up the difference. Taking on multiple loans is a slippery slope for any small businesses and can complicate your financial situation.

So how can Australian small business owners find the absolute best small business loan that will help them start or grow their business while not being buried in ridiculously high interest rates or other negative terms and conditions associated with the loan?

Here’s The Overview of Our Small Business Loan Guide:

  • Learn the full price of the loan – be sure to check for hidden fees and upfront costs.
  • Check the actual interest rate – this can be shown as an annualized rate on the contract. Be sure to get the full payment schedule so you won’t have any surprises when payment is due.
  • Documentation – You’ll at least need a business plan or all your financials plus are your business paperwork.
  • Get your finances in order – This isn’t just for getting the loan but also to plan for timely paying it off.
  • Learn the different types of lending – find the type of loan that fits your situation

Know the Complete Pricing of the Loan

Unfortunately, there are many individual lenders, lending agencies, and even well-established banks that look to take advantage small business owners. Many lenders know that small business owners, especially when starting a new business, will most likely face certain economic hardships that will leave them in need of small business funding to get their business up and running. They know that giving access to funds will be very enticing.

Playing off this weakness, many lenders try to draw in small business owners with promises of low business loan interest rates that they heavily advertise.

High hidden fees associated with small business loans, especially if you are asking for a small amount of money, can actually make the total amount you pay back much higher than if you were to opt for a more transparent loan with a higher interest rate but no hidden fees.

Small Business Loans Image

Fixed Versus Variable Rate

Another important aspect of getting a business loan that all owners should understand is the different types of business loan interest rates offered. In Australia, we have essentially two different types of interest rates offered by banks and lenders: fixed rate and variable rate.

With a fixed rate loan, your interest rate will not change over the agreed-upon term of the loan. With variable rate type, the interest rate will change according to market conditions, meaning that you could end up paying a lower interest rate if the market changes, but also could end up paying more if the average market rate increases.

I suggest you apply for a fixed rate loan, even a small increase in your interest rate, if you were to opt for a variable rate loan, might cause an unexpected expense for your business. However, if you feel that your business has the financial security and stability, and you can afford to gamble on market conditions, a variable rate loan might very well end up saving you money. Doing online research can help you understand the best position to take.

Documentation Associated with the Loan

Most Australian banks and larger financial institutions will require small businesses to provide a complete business plan in order to apply for small business financing. In many cases, the documentation required might need to be very detailed, complete with thorough financial projections.

If your small business has all of that paperwork already in place, then providing the bank with those documents shouldn´t be a problem. If your business doesn´t have a detailed business plan or if a specific lender is asking for more a more detailed and exhaustive business plan, it might be better to search for small business loans that require less extensive paperwork Low doc business loans are available from some lenders.

Several lending agencies simply require you to fill out simple forms related to the business and accounting data associated with your business plan. These lenders make the process of securing a loan much less hectic and time consuming for businesses on a tight schedule.

Organize Your Financial Future to Complete the Payoff of Your Loan

One of the most important strategies for financial success, both for individuals and businesses, is knowing how to manage your funds and your cash flow. Once approved for a small business loan, the instant influx of capital into your business can often times cause financial temptations to utilize that money in less than optimum ways.

Not only is it important to create a budget and do your best to stick to it, but it is also a good idea to make sure that you completely understand the conditions required for you to pay off your loan within the loan term.

The Most Popular Small Business Loans (with no security)

Small business loans are available in a wide variety of alternatives today. There are online and traditional options. From a “business line of credit” to a “short term business loan”, there are more business funding options to compare between than the traditional business loans the banks offer. Over 50% of Australian small businesses have a finance facility of some description. We concentrate on business loan types where you do not have to offer any collateral as security.

Below we have listed several types of small business loans:

- Unsecured business loans
- Business finance loans
- Business overdraft
- Equipment finance
- Short term business loans
- Bad credit business loans
- Trade finance
- Low doc business loans
- Business line of credit
- Invoice discounting

In this section we will introduce the different types funding available to small businesses
Unsecured Business Loans

Unsecured Business Loans

A short term business loan that has no security usually comes with a maximum of 12 months term. You’ll repay the loan and interest daily, weekly or monthly. To get approved it is very fast and you will need to show the last 3-12 months of your bank statements which the business lender will use to determine your trading past.



What is an Unsecured Business Loan used for?

Unsecured Business Loans are perfect to pay for marketing, finance unexpected expenses, tax bills, or to fund other business needs. Applying for these loans especially online is much quicker than brick and mortar banks.

Business Finance

Australia’s 2 million SMEs employ almost 70 per cent of the workforce, which is large by international standards and almost all of them need business funding in some form. Lack of access to additional funding was the most commonly reported barrier to the development or introduction of new or significantly improved goods, services, processes or methods (17%)


What is Business Finance used for?

Business funding supports every aspect of starting, running and growing a small business from cash flow lending, trade and supply funding and equipment finance. These can be access through online brokers or through traditional banks.

Business Overdraft

An overdraft facility normally has the capacity to cover business expenses while cash flow is being waited on. This which can be caused by seasonality or trading terms provided to customers. Small and/or medium businesses or organisations within Australia are the main suppliers of goods and services to 55% of Australian businesses.


What is a Business Overdraft used for?

Get a business overdraft facility to cover the cash flow shortfalls or when your business needs extra time to complete orders and can be used to make purchases. These funds can give you access to the assets required to stay afloat in the meantime.

Equipment Finance

Get financing for equipment in as little as two days from Australia's leading non-bank business lenders at the best possible rates and terms. The most common type of debt financing sought by businesses was a new loan with a term of more than one year (37%), followed by new capital/finance lease or hire purchase agreement (36%).



What is Equipment Finance used for?

Equipment Finance is ideal for assets like a business car, manufacturing equipment, computer software and hardware and most items that can readily be re sold. Apply for this type of loan by entering your amount at the top of the page.

Equipment Finance

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Short Term Business Loans

Typical a business loan that can be repaid in less than 12 months is classified as short term. Businesses reported the main reason for seeking debt or equity finance was to maintain short term cash flow or liquidity (36%). If you need additional help with financing your business visit this government resource.


What is a Short Term Business Loan used for?

Same day business loans are often term and are best used when fast business finance is needed to pay for unexpected bills but can be repaid quickly. The fees may be higher but the trade-off is your valuable time.

Bad Credit Business Loans

Even the best businesses can experience difficult times leaving a bad credit mark on their file but that doesn’t necessarily exclude them from receiving financing. Many of the non-bank lenders at ebroker will look at a business with bad credit as long as they can investigate the individual defaults.


What are Bad Credit Business Loans used for?

No credit check financing is prefect when a business has bad credit. This applies when the SME has had several defaults in their history but still has the assets and access to cash flow a new financing vehicle.

Trade Finance

Trade Finance

A Trade Finance facility can be preferable because it can be unsecured, standing behind any other bank facilities in place. This type of small business loan is also known as supply chain finance or import finance. Be sure to research the fees associated with any trade finance facility. Apply for this type of loan by entering your amount at the top of the page.



What is Trade Finance used for?

Trade Finance is perfect if your Australian business is regularly buying stock, inventory or supplies from international or local suppliers then trade finance can be a great way to finance the growth of your business.

Low Doc Business Loans

We mentioned earlier that you need have a lot of documentation to get approved. Sometimes a business has no documents up to date or they simply don’t have time to provide them all to the lenders but that does not mean a small business loan is out of the question. You will always need to provide the last 6 months banks statements to get approved for any Low Doc Business Loans.


What are Low Doc Business Loans used for?

The time to use a no document business loans is when you don’t want to provide full business documentation or they are not available.

Business Line of Credit

On many occasions a line of credit business loan is ideal if your needs and amounts fluctuate and the quicker you can settle the loan balance the best unsecured business loan rates you will get. Cash flow is king and having access to this cash can save your business in tight situations.


What is a Business Line of Credit used for?

Get a line of credit business loan when your loan amounts are not consistent but you always need fast access to business funding.

Invoice Discounting

With invoice discounting, you can access up to 90% of the value of your invoices paid to you upfront. This type of business finance is perfect for a business that offers terms of 3-90 days as you can use the invoices as collateral and free up your day to day cash flow problems. Apply for this type of loan by entering your amount at the top of the page



What is Debtor Finance used for?

Only 12 percent of small businesses request upfront payment. Invoice Discounting helps the other two thirds (67 percent) taking up to a week to issue an invoice and one in 10 invoicing more than a week after work has been completed.

Invoice Discounting

Conclusion

On many occasions a line of credit business loan is ideal if your needs and amounts fluctuate. The quicker you can settle the loan balance, the better unsecured business loan rates you will get.


As a small business you need to do your research. One of the best ways to research your options is to filter through the many lenders that are willing to offer you a loan. The best way to do that is to go through the step by step process we set up in our business loan finder. This will show you which lenders match your personal small business situation.

Small Business Loans FAQ

What are the minimum qualifying criteria for a small business loan?

Many lenders require that your business has a minimum amount available in monthly sales each month along with a credit profile that is in good standing. You also need to have been in operation for at least three to six months to be approved for an unsecured business loan. While some lenders do offer loans for newer businesses, alternative financing including invoice factoring and equipment loans may be looked into.


How do you get a small business loan in Australia?

To get a small business loan in Australia, there are a few things you should do before applying. Understand the purpose of the loan and the loan amount you will need. Calculate what you can afford to pay back, decide between a secured and unsecured loan, choose a fixed or variable interest rate, understand all the fees and charges involved, and get your paperwork ready. The lender will review all of your documentation to determine the amount you qualify for.


What types of loans are typically offered to small businesses?

Small business owners in Australia have access to a number of different loan options. For example, a small business may require funds for product development, marketing, staffing, and technology. A business overdraft is ideal for short term borrowing needs a business owner may have. They are easy to arrange, and you are granted immediate access to the funds. Interest is only paid on the overdrawn balance.
A regular bank loan is the most standard loan type for businesses. The loan amount, loan term, repayment schedule, and interest rate can all be tailored to meet the individual needs of the business.


What is a new business loan or start-up business loan?

Finding a new business loan or start-up business loan may prove to be a challenge from some new business owners. This is because, in most cases, you don't have evidence of strong financials, a solid credit score, or the years of experience with your business to qualify for some small business loans. Lenders want to know that your business is in good standing before loaning out money.
When applying for a new business loan, make sure you have solid proof of your financial position, all your business and personal information, and a business plan with specific details on how the loan will be used.


Why do lenders need bank statements for a business loan application?

The lender asks for bank and financial statements for a business loan application because they need to assess the risk and gain a more complete picture of the financial position you are currently in. This includes showing them information relating to your business income, savings, liability, other loans you may have, and credit cards.

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