Business Loans
Often, entrepreneurs in Australia need an injection of money to grow their businesses. Recent stats point out that around 88% of business financing clients loan over $500,000, and about 73% borrow more than $2 million.
Business loans apply to whatever industry you’re in; whether you’re considering expanding your café or putting up a tech startup, business loans can make the difference in your growth.
Because of how popular business loans are, it’s doubly important that entrepreneurs scrutinize further which loan product and lender is the best.
What are business loans?
Business loans, or commercial loans, are products specifically designed to either kickstart or grow your business. Whether you are purchasing new equipment, acquiring stock, paying staff, or managing operations, there are business loans catering to what your company needs.
Unlike personal loans, business loans are meant for business or investment purposes. They increase capital that can be used according to what benefits your operations.
Business loans can finance:
- Expanding operations
- Purchasing equipment
- Hiring staff
- Managing inventory
- Marketing and advertising
- Paying debt
The right business loan can keep your operations afloat when contending with cash shortage, or it could help expand your operations. As the stakes are a lot higher, let our business loan specialists do the legwork. We can source the loan with a competitive interest rate for your specific financing needs.
How do business loans work?
Most Australian banks and boutique lenders cater to entrepreneurs across industries. Because this loan product is not regulated by the National Consumer Credit Protection (NCCP) Act like a home loan is, securing a business loan is a much more straightforward process.
Having said that, as business loans do not have rigid guidelines to make a client eligible, your application will be evaluated on a case-by-case basis.
For instance, a client planning to start a restaurant would likely be declined if the industry is too high-risk and he or she needs more experience.
On the other hand, a construction business operating for a decade can borrow millions if the annual income proves to be strong.
Regarding security, business loans will either fall under a secured or unsecured business loan. Secured loans require assets as security; with unsecured financing, you won’t need to offer any collateral. But as a trade-off, unsecured loans come at a higher risk because if you cannot make repayments, you may end up losing your assets through repossession.
Business loans also vary between fixed or variable rates, and this is largely up to your company’s performance which interest rate type is ideal for your repayment capacity.
You can improve your chances of securing a business loan by ensuring you have a good business credit score, repay debts on time, and are judicious about loan applications.
What are business loan trends now?
Even though the need is constant, businesses are experiencing barriers in securing commercial loans. Last year’s data showed that of the 40% of SMEs that turned to banks for funding, about 19% of borrowers felt the loan approval process took too long, while 17% found it hard to search for competitive interest rates. And approximately 15% struggled with providing what lenders required as collateral, i.e., assets or personal property.
In fact, even as conditions post-pandemic have improved, SMEs are still disproportionately impacted by any restrictions or economic changes. Data by ABS found that 42% of small businesses had just 3 months of cash on hand – compared to just 24% of large businesses.
Amid tough conditions with inflation and stringent loan approvals, most SMEs will have to rely on improving cash flow and attracting sales.
The Australian government hopefully take action to review certain lending criteria or mandate maximum approval timelines to address the issues that business loan applicants experience.
But no matter the circumstances, entrepreneurs need business loans that can provide funds in a straightforward, practical, and convenient way.
How much can I borrow?
The amount you can borrow depends on several factors, including financial position, business eligibility, and security.
Australian banks allow business loans anywhere from $250,000 to over $5 million. Of course, loans that go upwards of millions will be assessed more meticulously and will require stricter criteria.
There are differences to the business loan terms that lenders offer, so it can be confusing which product to get. When seeking the most favorable rates and terms, it pays to have a financing expert like Intellichoice. Call us today if you want to learn more about how you can secure the most favorable loan for your business.
What are the types of business loans?
Term Loans – Term loans are the most common type of business loan. They involve borrowing a specific amount of money for a fixed term, usually with regular repayments of principal and interest over the loan term. Term loans can be used for various purposes and are available from banks, credit unions, and online lenders.
Line of Credit – A line of credit provides businesses with access to a credit card with a set limit. Clients can use the funds as needed and only pay interest on the borrowed amount. Lines of credit offer flexibility and can be useful for managing cash flow fluctuations or covering unexpected expenses.
Equipment Finance – Equipment finance loans are designed to help businesses acquire or upgrade equipment and machinery. These loans typically use the equipment being financed as collateral, allowing businesses to preserve their working capital while accessing the equipment they need.
Invoice Financing – Invoice financing, also known as invoice factoring or accounts receivable financing, enables businesses to access funds tied up in unpaid invoices. Lenders advance a percentage of the invoice cost upfront, providing much-needed cash flow to your business. Once the business’s customer pays the invoice, the lender deducts a fee and releases the remaining funds to the business.
Commercial Mortgages – Commercial mortgages are loans specifically for purchasing or refinancing commercial property. They can be used to buy office space, retail outlets, warehouses, or other business premises. Commercial mortgages often have longer loan terms and require collateral in the form of the property being financed.
What fees are included in business loans?
Business loans come with charges. Even if there are low-interest rates, it’s not the only fee you must consider. Factor in these costs among your options:
- Application fees
- Monthly account fees
- Early repayment fees
- Break or exit fees
- Valuation fees (for secured business loans)
It’s always better to shop around and find out what business loan products are available in the market. Our loan advisors here are always available in case you want faster but more in-depth research of what the market has right now. We assist you no matter the purpose of your business loan, so feel free to contact us online today.
