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The Lowdown on Small Business Loans


By now, almost every small to medium enterprise (SME) owner has heard of small business loans. It’s still a burgeoning industry in Australia as slick non-bank operators jump on the opportunity to fund businesses that the big banks won’t or can’t. There are two main types of small business loans: unsecured and secured.

Secured business loans are usually higher-value and come with superior terms since you will need to provide a personal or commercial property as collateral. Unsecured business loans are much more accessible as they don’t require hard assets as security. However, your business will still need to be established (not a fresh start-up) and generate revenue. These unsecured loans often carry a higher cost; although, they’re still usually a great way to access working capital within a short timeframe. As part of the COVID-19 stimulus package, the government has implemented the SME Loan Guarantee Scheme – essentially encouraging lenders to approve loans to SMEs.

Now that we’re clear on the two different types, let’s look at the answers to the most common questions SMEs have about small business loans. Loans are only useful if you can get approved and understand how they benefit your business’s circumstances.

What do I need to apply?

What you need to apply (successfully) depends on who you are dealing with. Banks and specialist digital lenders both offer a range of small business loans. The application process with your bank will typically be far more onerous and more than likely take weeks for a lending decision to be made. If you’re looking for a large loan (at least $300,000), a bank may be appropriate. Otherwise, consider a non-bank lender – the application process is done online and in many cases, you’re approved within the same day.

As a minimum, you’ll need to provide:

  • Your business’s ABN
  • GST registration
  • Your citizenship (or PR) information
  • Your business bank statements

It’s also worth noting that brand-new businesses are usually unable to access any type of business loan until they start generating sufficient cash flow. Lenders will want to see at least six months of operating history. In addition, if you’re applying for a larger loan, you may need to provide financial statements – such as your Profit and Loss Statement and your latest Balance Sheet and ATO portal, so make sure your taxes are up to date.

How do online lenders assess applications?

We know that banks ask a lot of questions and make it difficult to get the funds you need. Online non-bank lenders are usually a lot more flexible and willing to understand your unique situation and requirements. They’re also able to get you funding in a much faster time. To do so, they’ll assess your application holistically, taking into account your personal credit as well as the strength and characteristics of your business across multiple facets.

To make a quick assessment, online lenders will ask you a few questions to best understand your business. Be prepared to answer the following questions:

  • Where is your business located?
  • What industry do you operate in?
  • How long has your business been operating?
  • What’s your average monthly and yearly turnover?
  • How much do you want to borrow and for how long?
  • How will the funds be used, what are you buying?

Ideally, you’ll be able to demonstrate how the funds will improve your business, revenues and profits. Show what you expect to spend and how you plan to repay the loan.

Why was my application declined?

Just like in other areas of life, even if you put your best foot forward, you may get rejected. These lenders uncover the red flags before they commit to a serious relationship with your business. These common repeat offenders are usually why:

  • The owner (you) has a bad credit rating. While non-bank lenders are flexible and accommodating, they know a red flag when they see it.
  • You rely on only a few customers. If you lose one, you may be unable to service the loan.
  • Your financials (cash flow) are not sufficient to service the loan.
  • You haven’t been operating for long enough, or the outlook for your industry is dismal.

What influences the cost of the loan?

Unlike other products, such as a credit card or home loan, there may be far more variability in the cost of a small business loan – especially unsecured loans. Lenders will price a loan based on your credit score, the term of the loan, the amount you wish to borrow, the assets you can provide as collateral and whether the rate is fixed or variable (among others).

“The total cost of the loan can be wildly different depending on the extra fees included.”

In addition to interest, always remember to take into account any loan establishment fees, monthly or annual fees, penalties for paying early, or for paying late. The total cost can be wildly different depending on these variables.

How to select the best lender for your business

There’s a lot to think about when it comes to applying for a small business loan, so it’s best to enlist someone experienced to help. Find an expert business finance broker to help you assess your situation and help in the application process. Business finance brokers will take the time to understand your financial situation and compare products and lenders on your behalf. If there’s a better alternative to a small business loan, they’ll let you know. Remember, never approach every lender one by one, they’ll hit your credit profile and tank your credit score – a business finance broker is your best bet.

Capital Plus Finance is an experienced business finance broker that stays true to our purpose. The Capital Plus Finance team will do everything we can to help you secure a suitable finance solution for your small business. Please give us a call anytime to find out more or to have an obligation-free chat about your business’s funding situation.