A myriad of business loan options is available from a range of lenders, each offering personalized solutions for your circumstances. When you understand these choices, you will be able to match the best of these to your goals and prepare for eventual success.  Remember, always discuss your plans with a specialist small business accountant and taxation specialist before making any decisions.

The Fundamentals of Business Loans 

Australia provides many types of small business loans for beginning entrepreneurs. These are offered in either an unsecured or secured format, with borrowers able to pay with fixed variable rate interest. The client can also choose the best repayment frequency, whether monthly, quarterly, or annually.

The payment term usually ranges between "1 and 30 years," with security varying from business assets to commercial or residential property and cash or anything the provider approves equal to the loan amount.

When you want to avoid adding security, the lender may offer an unsecured business product, but typically for a lower borrowing amount. The primary difference with unsecured lending and secured is the asset requirement against the loan product.

Security lending

Secured lending requires an asset to serve as security against the loan. This takes the risk of non-payment away from the provider. If default happens, the lender will seize the asset to recover the balance.

The assets must account for the borrowed amount, whether "accounts receivables, inventory or property." Here are the advantages/downsides of a secured product.

        - Typically, a lower rate with a higher loan amount than an unsecured product.
        - The loan allows borrowing against virtually any asset that equates to the lending amount as long as the loan provider approves.
        - Value assessment plus asset documentation and potentially further proof could be required.
        - The approval process is often extended with these loans since the lender needs to review the security.

Unsecured lending

Physical assets are not needed to secure the loan with an unsecured product. The loan provider will look at the business's financial strength and the cash flow. Here are some advantages/downsides of unsecured lending.


        - The rates tend to be higher compared to secured products as they're viewed as riskier for the loan provider.
        - Instead of physical assets, the borrower will use the business finances to show capability for balance repayment.
        - The process can be somewhat faster since they're not as complex with the addition of security review.
        - The loan amounts are usually smaller because the loan is unsecured, and the lender has a greater risk.

A business loan guarantor

Aside from secured or unsecured, a lender could expect a business owner to have a director guarantee or a guarantor. This allows a loan provider to recover outstanding debt if the borrower stops making payments or is unable to continue making the payments. Here are the two types of guarantees.

▫   First party guarantee

This is the most common guarantee that offers an owned asset, typically property, to secure the loan.

▫   Third-party guarantee

Sometimes, an entity or individual, not you, will need to guarantee the business loan by providing an asset belonging to them. If you become unable to make the loan payments, the lender will expect the guarantor to do so on your behalf.

If the guarantor does not do so, the individual or entity will need to forfeit the asset to cover the balance and, in some cases, supply added security.

How Much Can You Borrow

Many small business owners choose to secure loans with an asset to achieve a higher loan amount, typically offering property as security. The equity in the property will decide the borrowing limit.

The difference between the property value and the mortgage is the equity amount. Typically, lenders will loan up to as much as: "80 percent of the value of a residential property, 70 percent of the value of a rural property, and 65 percent of the value of a commercial property." Find an informative guide on small business loans at https://www.businessnewsdaily.com/7695-small-business-loan-guide.html

Creditworthiness

Creditworthiness plays a significant role in a lender's decision for loan approval. A business credit rating is the number value of the company's financial strength. All financial entities use creditworthiness when assessing an application to determine the risk of a prospective business loan borrower.

When a borrower has less-than-favourable credit, getting business loan approval can be challenging, but it's not impossible.

Interest rate

When applying for a business loan, borrowers have a choice between either a fixed or variable rate, whichever will fit their needs best.

▫   Fixed-rate lending

A fixed-rate allows a business owner a predictable budget and manageable cash flow since the client can lock the rate.

It won't change regardless of whether the "RBA cash rate" fluctuates. However, in that same vein, extra payments or additions to the agreed monthly instalments will draw fees and charges. You will also have penalty costs for terminating the fixed-term agreement prematurely.

▫   Variable rate lending

A variable rate means the interest and instalments can change throughout the loan's life. If rates increase, more interest will be paid on the loan, and the monthly instalment will go up.

If the rates drop, there will be less interest due on the loan, plus there will be flexibility with the monthly instalment, allowing extra to be paid and no penalty for repaying the balance early. You will also have the choice to withdraw added funds if you have a product that allows this option.

When trying to get a business loan in Australia, you must follow a relatively distinct guideline. Go here for guidance on different ways to get business loans in Australia.


        - Assess your financial strength and prepare a cash flow or profit/loss statement.
        - Develop a solid business plan outlining reachable goals and your current financial status.
        - Work out the borrowing amount, leaving no possibility for returning sooner rather than later to ask for an increase.
        - Compare lenders and loan types to decide which works better for your needs.
        - Enter an enquiry or reach out to the local branch either in person or by calling in.

You will need to gather pertinent documentation in preparation for the application process. Here is the paperwork to have available.


        - Individual income proof
        - Tax returns and business/individual financial statements for two years +
        - A personal statement declaring financial position

The further the application process progresses, the lending provider can request added documents, including identification.