How To Get A Small Business Loan In Australia
How To Get A Small Business Loan In Australia

Funding the costs of regular business operations is the primary function of a small business loan. The loan can be either secured against an existing asset or unsecured, depending on the lender or traditional bank providing the funds. While it may be challenging to find a loan in Australia, this article will explain how to apply for and receive the small business loan that is currently available.

There are a variety of loan options available to small businesses today, from "unsecured business loans" to "short-term business loans" to bridge the gap in case of an emergency. Bank loans aren't your only option when it comes to financing your small business. There are no limitations on how a business loan can be used, so long as it serves a legitimate business purpose.

More than half of all small businesses in Australia have access to some sort of loan.

What Is Unsecured Business Loans in Australia?

When you apply for a loan from a conventional financial institution, they will typically require you to put up some form of collateral to secure the loan. If the borrower fails to make their loan payments, the lender can use the collateral to recoup some of their money.

A company can get a "unsecured" loan without putting up any collateral. Because of the limited options available to them, lenders in this situation take on a higher degree of risk. This means that the borrower's credit score is more crucial than ever before in establishing the maximum loan amount.

With the additional funds from an unsecured business loan, you can finance inventory, equipment, renovations, new hires, or anything else your company needs.

Some company owners turn to this form of financing when they need to smooth out their cash flow or capitalize on a new opportunity.

What is a secured business loan in Australia?

Commercial real estate and primary residences are common forms of collateral for secured loans like those used to purchase businesses. The lender assumes less risk with a secured business or commercial loan because the lender can foreclose on the collateral if the borrower defaults on payments. Loan amounts for commercial or business purposes are typically larger and interest rates are lower for loans that are secured.

Commercial real estate is often used as collateral for secured business loans. A doctor who also owns the medical office building can use the equity in the latter to secure a loan for the purchase of new medical equipment.

There are business owners who can get by without a physical storefront or office, or who get their commercial space through a lease or rental agreement. However, this may not preclude their eligibility for a business loan to cover ongoing costs or take advantage of expansion opportunities. In order to get a secured business loan, some business owners even put their personal homes up as collateral. Yet others are able to secure an unsecured loan backed by a personal guarantee despite their lack of commercial or residential real estate but sufficient business financials and liquid assets.

Types of business loans in Australia

1. Traditional bank term loans

Most people envision this when they think of a bank loan for a business. You will have to fill out a ton of paperwork in order to get a bank term loan. You will need to submit financial statements and perhaps a business plan in addition to your application. The interest rate will be lower because the loan is secured and therefore needs collateral. You will make a consistent monthly payment, just like with a term loan. The primary disadvantage of a conventional bank loan is the lengthy approval process, which can take up to two months. Another issue is that 74% of small business loan applications in Australia are turned down by banks.

2. Business credit cards

In Australia, business credit cards are a common source of funding for small businesses. Even though business credit cards' interest rates can be high, the majority of them provide an interest-free grace period (typically 55 days) for charges. Therefore, you avoid paying interest if you settle the balance within 55 days of the charge. The issuer will require fundamental information when you apply for a business credit card, such as your income and number of years in business. To assess your creditworthiness, they will also look at your credit report and score. Business owners occasionally use their personal credit cards for business expenses. If obtaining a business credit card is not an option, this may be a simpler method of financing a company. Although it's a good idea to keep your personal and business finances separate, this choice can present some difficulties.

3. Business overdraft

You are permitted to run a negative balance on your regular transaction account with a business overdraft up to a predetermined amount. Any money that is drawn past your account's balance is subject to interest charges. You will be billed fees in addition to the interest on the borrowed money. Both an establishment fee and a regular accounting fee are examples of these. There are secured and unsecured business overdraft options available, with varying interest rates reflecting different levels of risk to the lender.

4. Business line of credit

A business line of credit allows you to borrow up to a predetermined amount, but you only pay interest on the money you actually use. For instance, if your bank approves a $100,000 line of credit but you only use $50,000 of it, you will only be charged interest on the $50,000 that you are actually using. You now have the freedom to use the money only as needed. The loan can also be repaid at your own pace. If you need to borrow less than $50,000, a business line of credit won't be an option for you since they typically have a $50,000 minimum.

5. Business equity loan

A loan or line of credit secured by residential or commercial property may be used as a business equity loan. A business equity loan has several benefits, including a competitive interest rate and the ability to borrow up to 100% of the value of a residential property pledged as security for the loan. The biggest drawback of this kind of loan is that if you run into financial trouble and are unable to make the payments, your property is at risk.

6. Low-doc and no-doc business loans

A low-doc loan might be the best option if you lack the last two years' worth of financial records and income documentation. A no-doc loan might be a good option if you lack the necessary documentation to prove your income. The collateral for no-doc and low-doc loans is residential real estate. Due to the increased risk to the lender, the main disadvantage of these loans is their higher interest rates. Specialized non-bank lenders like Liberty typically offer low-doc and no-doc business loans. These loans' approval times can range from a few days to several weeks.

7. Invoice finance

Working with an invoice finance company will help you get the money from your customer invoices sooner if you don't want to wait. You'sell' an invoice to an invoice finance company when you create it. They charge an advance fee (typically between 2% and 5% of the invoice amount) in addition to paying you a portion of the invoice value (between 80% and 95%) immediately. You receive any remaining money after the customer pays the invoice, less any fees and charges.

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Business loan requirements – what you need when applying for a business loan in Australia

Before you apply for a business loan

There are a few things you should address before approaching a lender.

You should have an idea of how much cash you need and how you intend to put it to use before approaching a lender. A business plan can be useful even if you aren't launching a brand-new company. Find evidence to back up your calculations. For example, if you run a manufacturing company and are in the market for some new machinery, it's a good idea to shop around for prices from various suppliers. Always think about the total price. In the case of the aforementioned machinery, this would entail shipping and set-up.

Knowing your credit score is important before applying for a business loan because lenders will check it out. It will be challenging to obtain a business loan if you have a history of late payments, default, or judgments. A free copy of your credit report is available to you. Find out how to obtain a copy of your credit report and credit score.

You will have a harder time getting a business loan from a bank if you have tax debt to the Australian Taxation Office (ATO) and are currently in a payment arrangement with the ATO. Talk to potential lenders about your ATO debt to find out if it will prevent you from getting a business loan before entering a payment arrangement with the ATO.

Think about what you would be willing to put up as collateral for a secured loan. Properties and businesses assets in urban, suburban, and rural areas can all be used as collateral for loans. Know the property's approximate value and the amount you owe on it if you intend to use it as collateral.

Business loan requirements for bank loans

To approve your application for a business loan, the bank will conduct a credit check and other due diligence on your identity. Therefore, the first step in fulfilling the requirements for a business loan is to obtain the necessary identification, be it a driver's license, a passport, or both.

Balance Sheet, Income Statement, Cash Flow Statement, and Statement of Retained Earnings are the four main financial statements. The first three show your assets, liabilities, and net worth, which a bank will want to see if you're applying for a business loan. Your most recent tax returns and a Business Activity Statement (BAS) may also be required.

If you are a shareholder and/or director of a company, you may be asked to provide proof of your personal income in the form of your two most recent tax returns and notices of assessment.

Lenders typically require either paper or digital copies of your most recent month's worth of business bank statements. In addition, financial statements from business checking and savings accounts, as well as business credit cards, will be required when applying for a business loan.

A business plan is often required when applying for a business loan, especially for startups and new businesses. A substantial investment of time and effort is needed to write a business plan. Learn the standard components of a business plan.

How do I apply for a business loan?

Getting a business loan doesn't have to be a scary process. Finding a professional business finance broker to work with is a good first step. Someone who is familiar with your goals and can locate lending institutions eager to support them is invaluable.

A professional broker can help you get your business loan application approved with minimal hassle. Keep in mind that your credit score is affected by the number of times you apply for credit. Whichever lender you ultimately choose for your formal application, make sure they are interested in your specific loan and financial situation.

Read More: How To Get A Business Loan With Bad Credit

Factors that impact business loan interest rates

Some of the most important factors that can affect the cost of a business loan are, in addition to the type and term of your business financing and the amount you need to borrow:

1. Security

Because the lender is taking on much less risk if you have property or other assets to use as collateral, you can anticipate paying less than you would for an unsecured loan. Some lenders, especially big banks, might only be willing to provide you with certain types or levels of financing if you can provide security.

2. Trading history

This is also a risk issue; if your company has a track record of profitable trading, a lender will reasonably anticipate receiving interest payments and principal repayments on the scheduled dates. You might still be able to get the financing you need if your company is small or just getting started, but you should expect to pay higher interest rates and fees as compensation for the lender taking on more risk.

3. Type of lender

Bank financing is generally more expensive than that provided by alternative or "fintech" lenders, but it's also much more difficult to obtain. Many SMEs cannot meet the strict requirements that banks have because they are notoriously risk-averse and tend to have (including credit rating, collateral, and financial history).

Additionally, applying for bank financing can be difficult and drawn out. If you need quick, flexible business financing, you may need to turn to an alternative lender, but you should be prepared to pay more for your loan.

4. Fixed or variable rates

Whether the interest rate on your business loan is fixed or variable is another crucial factor. Fixed rates give you assurance about the amount you will pay for a predetermined amount of time (typically up to five years), but they frequently have restrictions on early repayment and tie you to a higher rate even if interest rates decline. Variable rates give you the opportunity to save money if interest rates decline while your loan is outstanding, but they also expose you to much higher costs if rates rise.

Before applying for any type of variable rate finance, it's important to carefully consider the impact that rate increases may have on your ability to repay your loan because the economic factors that affect interest rates are entirely beyond your control. Of the G20 countries, Australia has the fourth-highest short-term commercial rates.

5. Terms and conditions

Finance for businesses frequently has requirements. The greater the risk you pose, the more likely it is that a lender will impose terms when providing you with credit. Even the largest banks frequently forbid customers from taking out additional loans, but some alternative lenders that are not governed by the same laws as Australia's banks may impose different restrictions. These could limit your ability to pursue business expansion opportunities or stop you from providing discounts and incentives to your customers while your loan is in effect.

Restrictive conditions may result in a lower interest rate, but they may also have a significant long-term financial impact on your company.

Type of Loan

Secured or Unsecured

Interest Rate* (per annum)

Line of Credit

Secured or Unsecured

5% to 12%

Business Overdraft

Secured or Unsecured

7% to 12%

Merchant Cash Advance



Equipment Finance


6% to 15%

Business Credit Cards


12% to 22%

Invoice Finance


12% to 36%

Bank Term Loan



Unsecured Online Loan



* These rates are based on information found on websites of banks, non-bank lenders, and business finance brokers when this guide was created. Interest rates are subject to change.

Business loan terms – from short-term to long-term business loans in Australia

The term, or duration of the loan, is another aspect to take into account when choosing a business loan. These can be very different between Australian business loans. The interest rate tends to be higher the shorter the term. For instance, the interest rate on a conventional secured bank term loan will be around 5%. In contrast, a two-year term online business loan will have a higher interest rate. As we previously discussed, whether a business loan is secured or unsecured affects the interest rate.

The length of the loan should be taken into account when selecting a business loan. A short-term loan might be the best option if you require money to cover immediate cash flow needs. A long-term loan would be more appropriate if the money was to be used to buy expensive machinery or real estate for your company. Your ability to make payments will also affect how long your loan will last. A short-term loan is probably not what you want if you need to borrow a large sum of money because the payments may be too expensive for you to make on a regular basis.

Can I get a commercial loan with my SMSF?

You might be able to use your self-managed super fund to obtain a mortgage on a piece of commercial real estate if you have one. To help diversify their investment portfolio, some SMSF participants purchase residential or commercial properties. Members of SMSFs can acquire residential or commercial real estate and generate rental income, equity, and capital gains if they decide to sell the asset. You can use your SMSF to obtain a mortgage the conventional way if you're not purchasing a residence for yourself or a member of your family to occupy.

Buyers are typically permitted to use commercial property acquired through an SMSF as long as it is used solely for commercial purposes. Commercial property mortgages typically have slightly higher interest rates than residential property mortgages, whether held personally or in an SMSF. While the term of the mortgage is typically shorter, some lenders will extend it up to 30 years.

Can I get a business loan if I have bad credit?

Even if you have poor credit, you can still obtain a business loan. These borrowers will, however, typically pay higher interest rates and be required to put up collateral to secure the loan. Without a credit history that is superior to average, it is difficult to obtain unsecured business loans. You'll need to make a strong case to your lender if you're applying for a business loan and your credit score isn't great.

If you can demonstrate that your financial situation has improved and you can service the loan, some specialty lenders might still approve you. You should be able to demonstrate a track record of steady business revenue, or if you're starting your own company, a track record of earnings in the same sector, that is equally strong.

In the end, you want to demonstrate to the lender that you are a risk worth taking and that repayment issues are not likely to occur again. Business loan applications with low credit scores are less likely to be approved by mainstream banks and credit unions. However, a business finance broker will be able to advise you on what documentation will improve your chances and which lenders may still consider you.

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