Best Australian Small Business Loans

  • Updated: 24/07/2021
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bizcap-logo
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getcapital logo
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banjo logo 150 x 100
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maxfunding logo
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beyond merchant capital logo
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Valiant-logo
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The Challenge For Small Business Owners With Getting Loans From Banks

Since the global financial crisis in 2008, Small business owners have found banks to be a tricky source to access funding. Total business lending as a percentage of GDP in 2008 was 62% and in 2019 had dropped to 48% and this drop can be explained by a number of reasons including:

  • Banks have prioritised mortgage lending over business lending as it has lower risk and is more profitable
  • The royal commission into the banking industry has resulted in bank adopting tight lending standard

These tight lending standard have placed an onerous burden on business owners in order to borrow from a traditional bank. For example, banks often require the following to get a business loan:

  • Collateral: Banks require business owners to provide some sort of asset to secure the loan. Many small businesses do not have these assets.
  • Poor credit history: Banks need to know your business is creditworthy. This rules out businesses with poor credit scores, a history of defaults, and previous bankruptcy. It also rules out business with no credit history.
  • Limited cash flow: Bank need to see you have the cash flow to pay the loan on time in future
  • The need to provide financial documents: Small business owners may not have the time or resources to provide the financial paperwork banks require.
  • Lack of solid business plan: Your business needs to show the bank why the loan is needed, for this, they require a comprehensive business plan.
  • Too many loan application: If you have a history of applying for multiple loans at one time, this is often seen as a red flag for banks.
  • Requirement for expert advice: Banks like to see you have sought the right advance from experts such as accountants before applying for a loan.
  • Insufficient operating history: Banks favour business with long and significant track records.
  • Industry selective: Banks prefer not to lend to industries that are weakening

Not only do these reasons provide barriers for small business owners but also take up the owner’s time to prepare these requirements. These issues combined with a lengthy approval process means owners need to consider other alternatives to borrow.

Online Lenders, An Worthy Alternative to Banks For Small Businesses

Online lenders seek to remove the stress points small business owners experience when seeking loans from banks. These lenders use online technology to enable fast online applications with quick approval and capital in your business account for this reason they are a worthy alternative to banks.

Sometimes called Fintech lenders (an amalgam of financial technology) or alternative lenders, getting a loan with these lenders provide the following benefits

1. Save Time And Hassle With Quick And Easy Online Application With Few Documents

Many online lenders have an online application process that takes under ten minutes. Unlike banks, many of the loans will not require documents such as profit/loss statements or balance sheets. This helps streamline the application process, all you should need is a business ABN/ACN, basic bank details, business owner details and loan details.

2. Speed: Fast Turnaround – Application, Approval to Funding

Time is of essence for any business, and as small business funding is often needed right away. Unlike banks where you have to wait while your application is thoroughly assessed with a high risk rejection, application with online lenders can be approved with 48 hours and even on the same day.

3. Flexibility

Online lenders work with you to find a payment schedule that is considerate to your business need and cash flow. Most lenders allow you to choose between daily, weekly, or monthly repayments and principal + interest or interest only.

Ways online lenders provide flexibility:

  • Payments terms – 3 months to 36 months
  • Loan amount – funding ranges from $5000 to $750,000
  • Payment schedules – Daily, Weekly, Monthly, Quarterly, Seasonal
  • Loan types – Term loans, Line of credit, cash advances, secured and unsecured loans

4. No Collateral

Many fintech lender do not require security for the loan. Some lender may require security if the loan is above a certain amount (i.e.. above $300,000)

5. Cost

There is a perception that loans with fintech lenders are more expensive than banks. Unsecured loans are riskier so have higher interest rates than secured loans which banks require however if banks offered unsecured loans, then online lenders would be cheaper.

6. Low loan qualification barriers

While banks difficult to obtain a loan because of a long list of requirement you need to apply, Online lenders keep thing simple. As long as you can show your business can meet the following conditions then you can apply

  • Minimum trading period – usually 3 to 6 months (but may be more)
  • Minimum monthly or annual turnover (usually $4000+ a month)
  • Australian ABN/ACN
  • Australian Bank account

7. Low Business Credit Score May Be OK

Some lenders do require your business credit score to be above 500 (or similar) however other lenders keep open mind. These lenders will look at other factors such as cash flow and turnover when cash flow appear weak.

8. Ongoing Customer Service

Once your send your application, a loan specialist will call you and work with you to find the right loan for your need. Plenty of lender pride themselves on not just their technology but also the customer service they can deliver.

9. Online Management

Most lender allow you to make changes to you loan directly through your online account. For example if you need to change your direct debit details.

10. Access Greater Choice Of Lenders and Products

You can find a wealth of online lenders via the web, all with a range of different products. With some research (such as through this website), you should be able to find the lender with the right products for the needs of your business.

What You Need To Apply For Loan


Small business owners looking for a business loan will need to show their business can meet the qualification of the lender.

Requirements differ for unsecured loans vs secured loans. Unsecured loans usually have to meet higher minimum eligibility requirements since lenders take on more risk with no asset security for the loan.

Common requirements for unsecured loans:

* A valid ABN or ACN Business Number
* An Australian bank account with an account number and BSB
* Proof the business owner is 18 years or over of age (photo ID or similar)
* Business earns a minimum turnover per month
* Business has been operating a minimum period of time
* A minimum credit score
* Larger loans may require financial documents such as balance sheets
* Business plan (in some cases)

Lenders require your bank account details for a few reasons:
* Evidence your business earn their minimum revenue requirements
* Evidence your business meet their minimum operating requirements

Lenders often require that your business earns at least $4000 per month and has been operating for at least 3 months. This makes unsecured loans unsuitable for start-up businesses.

Lenders require your ABN/ACN and Bank details so:
* They can perform a credit check of the business

All lenders will perform a creditworthiness check as part of due diligence when assessing the candidacy of the business for a loan. Some businesses will require a minimum business credit score (usually 500+) while other lenders will look at current cash flow. Businesses with poor credit scores or a history of bad credit can expect to have higher interest rate costs.

Lenders may require financial paperwork if:
* Financial documents such as balance sheets, profit, and loss may be required if the loan you apply for is above a certain amount. This amount is often between $75,000 and $150,000.

Larger loans may present a higher risk for the lender, so lenders may want more in-depth financial data about the business. Unsecured loans tend to be around a month’s worth of turnover, so if the loan is of substantial size, they will want to see the amount requested matched the account books.

Common requirements for secured loans

* A valid ABN or ACN business number
* Proof the business owner is 18 years or over of age (photo ID or similar)
* Proof of ownership or mortgage of the asset being used as security
* Financial documents (especially for larger loans)
* Business plan (in some cases)

Since secured loans are back by an asset, lenders don’t need to see the monthly revenue or time in operation. Nevertheless, lenders prefer you pay the loan than risk default and a need to claim the security to cover the debt so will check your financials. They will also need evidence you own the asset and to perform a valuation on the asset,

Loan Options For Australian Businesses


Running and maintaining a business is expensive, which means you will need access to capital to cover these business expenses. Getting a business loan is one of the most popular options to pay for these expenses.

Lenders will lend you business capital to pay for expenses that you cannot cover yourself but will charge interest for the loan. Common reasons your business may need to take out a loan include:

  • Purchasing or hiring/lease of equipment or IT software
  • Purchase or lease of office and shopfront premises
  • Operation costs, such as staff wages, marketing campaigns

There are many types of loans to choose from but they all will be a term loan or line of credit and be secured or unsecured. Understanding and choosing the right loan can make a big difference in finding the right loan for your needs.

A term loan means your business will receive the entire loan upfront as a lump sum with a set repayment period. Term loans are the most common type of loan available.

A line of credit and business overdraft are two examples of loans that do not come with a term. With these types of loans, you have pre-approved access to a credit facility up to a specified limit. You can then access this credit facility anytime you need extra capital, much like a credit card.

Secured loans (sometimes called equity loans) mean you back the loan with some form of asset. This will result in lower interest costs as it gives the lender confidence you can repay the loan. Unsecured loans come with higher interest costs but are easier and faster to get.

Australian businesses have a wealth of options for choosing a business loan. Different loans are best for different purposes so it is worthwhile being familiar with the different loans available. Below we look at these types of loan options.

types of business loans

1) Line Of Credit


Similar to a business credit card, a line of credit allows an Australian business to access funds from a credit facility up to a maximum amount. A business owner can withdraw funds when they need it and will pay variable interest rates only on the amount you drawdown from the facility.

A line of credit is a very flexible type of loan as you can access pre-approved funds anytime you need. This arrangement you only pay interest costs on the amount they use meaning you can avoid paying costs of capital you don’t use.

What is a line of credit

2) Asset Finance, Equipment Finance


All businesses need assets to operate and these assets can be costly and have a reasonable but not unlimited lifespan. Examples include motor vehicles, IT Software, and machinery.

Being able to fund these assets is critical if you wish to offer the same level of service as other competing businesses. As these assets are very costly, one option of to use a lender that will provide asset finance or equipment finance.

What is Asset finance?

Asset finance is a type of business loan where the asset you are financing acts as the security.

Finance for the purchase of the asset can be one of several arrangements including hire purchase, outright commercial hire purchase, finance lease, operating lease, novated lease, and chattel mortgage.

Overall, asset finance requires some planning for a business, as approval times are longer than a short-term business loan. The benefit of longer repayment terms and lower interest rates makes however makes asset finance a popular option for Australian businesses.

What is asset finance

3) Bad Credit Business Loans


Bad credit loans (sometimes called poor credit or second chance loans) are for businesses are an option for businesses with a poor credit score.

If your business has a poor record of paying debts in a timely manner, a previous default, or bankruptcy then your business may not qualify for a loan with many lenders. Businesses with poor creditworthiness present a high risk to many lenders, so are not model candidates for a loan.

Businesses with poor credit need to find lenders willing to offer loans to businesses with bad credit.  There are two basic ways you can convince lenders you will honour the debt. A secured loan means the loan is backed with business assets or with an unsecured loan showing good financials such as cash flow (proven with bank statements).

Bad credit loans

4) Invoice Finance


If your business model revolves around invoicing clients, then invoice finance can be a good option to get capital.

Invoice finance means you are giving your outstanding invoices to lenders in return for a cash advance of up to 100% of the invoice value. Invoice finance means your business does not need to wait up to 90 days for the client to settle their debt, as the lender will provide you with immediate funding.

There are two basic types of invoice finance. Invoice factoring and invoice discounting. Factoring means the lender will be responsible for collecting the amount owing from the client owing, invoice discounting means your business will collect from the billed client.

What is invoice finance

5) Business Overdraft


A business overdraft allows your business to access a revolving credit facility up to a maximum predetermined limit sent by the lender. This type of funding working much like a line of credit, the difference is the overdraft is attached to a business debit account or trading account.

Your business may benefit from a business overdraft if you need to withdraw amounts larger than the business debit account has available.  Using an overdraft means your business can access a credit facility to maintain cash flow by accessing a credit facility.

Business overdrafts only charge interest on the amount overdrawn, as rule overdrafts often attract the highest interest rates of any loan type. So while this finance option is the most convenient, it also has the highest pricing with higher interest rates and often have additional overdraft fees.

What is a business overdraft

6) Merchant Cash Advance


A merchant cash advance (MCA) allows SME owners to receive finance upfront and pay for the advance using a percentage of the business’s future daily or weekly sales. Unlike other loans, security is not typically required.

This type of finance is only an option for businesses who collect all their sales payments through credit cards, debit cards, and EFTPOS systems.

Payments are automatically debited daily or weekly and usually have fixed interest meaning payments are consistent with the volume of sales made during the payment period. For this reason, an MCA is a good option for businesses that sales are seasonal. Businesses that are suitable for MCA include retail, hospitality, cafes, hotels and car servicing.

What is a merchant cash advance

7) Unsecured Business Loans


As the name states, an unsecured business loan is a loan that does not need to be guaranteed with an asset. This type of loan is increasingly becoming one of the most popular types of loans in Australia as they are easy and fast to obtain.

Most lenders have an easy online application process with no or little paperwork, that can result in your loan approved in hours.  While unsecured loans can have higher interest rates than a traditional loan, the speed of approval and funding provision can be preferable to many business owners.

Lenders that provide unsecured loans do have minimum criteria the business will need to satisfy before approval they will grant approval. This includes a minimum time in business (usually 3 or more months) a minimum monthly revenue (usually $4,000 plus and a minimum credit score.  Loans also tend to be smaller than secured loans as the lender is taking on greater risk.

What is a unsecured Business Loans

8) Secured Business Loans


Secured business loans or equity business loans are loans that are backed with collateral. Lenders will accept up to 100% of the value of the security which may include residential property and motor vehicles.

If your business has suitable assets to guarantee the loan, then security can result in lower interest rates. Use of collateral can also mean access to larger loans as the lender will know they can recover their costs by claiming the asset in event of default.

While there are certain advantages with secured loans, there are some cons. Not all businesses have assets they can use and there is a risk you can lose both the asset and the business in event of default. Secured loans also come with extra fees as the asset will need to be valued.

What is a secured business loan

9) Business Credit Cards & Buy Now Pay Later


Business credit cards and buy now pay now (BNPL) style loans are good short-term loan options. Like a line of credit and business overdraft, credit cards and BNPL options provide access to a credit facility (up to a limit) that you can access when you need.

While it is easy to assume business credit cards are the same as personal credit cards, there are subtle differences. Business credit limits are larger, insurance limits more generous and reward programs are tailored to business, not personal needs. Business cards also allow you to export your transactions into account software programs such as Xero.

What is a Business Credit Card

10) Low-doc and no-doc business loans


Low-doc and no-doc business loans are options if your business does not have the proof of income to meet most lenders’ revenue requirements. You will commonly find that many unsecured loans have no or low doc requirements if you borrow less than $75,000 or $150,000.

What is a No Doc and Low Doc Loans

Unsecured Business Loans FAQs

Can you get a small business loan with bad credit?

Yes, a specialist lender can secure business finance for Australian companies with a bad credit score. Bizcap is one lender that provides working capital to lower credit score to assist with their cash flow needs.

How much is a small business loan?

An unsecured business loan for a small business can range from $5,000 to $250,000 depending on the credit history and cash flow status of the business. For larger amounts, an Australian business should apply for a secured loan that gives a fixed rate or variable interest rate option.

What is the must-have of a lender?

Any lender considered must have an Australian Credit Licence. While states like NSW and Victoria have additional protections for small businesses, these only apply to regulated providers with an AFSL.

Can a new business get a loan?

None of the loans in this comparison are applicable for new businesses. A lender requires evidence of ongoing cash flow in the form of bank statements or other financial statements. Generally, a start-up loan is only offered by specialist lenders or venture capitalist who charge a higher interest rate or will only offer a secured loan. Some new businesses will also apply for a personal loan with the funds then used for the business.

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