You need money to run a business and you can't always rely on your savings or incoming revenue to cover costs. Because of this, taking out a business loan is fairly common in Australia, with lenders having more than $40 billion worth of business loans and advances on the books.
There are lots of reasons your business may need a loan, especially if you're just starting out.
Find out how to apply and how to get approved below.
Your loan application should answer the following questions:
Why are you taking out a business loan? Your lender wants to know that the loan will contribute to the business’s profitability and that you can pay it back.
How much are you borrowing? This helps to determine the options available to you and how risky the loan might be for lenders.
How soon do you need the money? Will you be wanting it as one lump sum or in multiple payments? When are the first and last payment dates?
How will you pay back the loan? This helps to determine whether or not your business has the cash flow to pay back a loan, but also the terms and conditions of repayment.
What is the risk to the lender? Bigger loans carry more risks to the lender and are therefore more difficult to get approved. The same goes for unsecured loans and those with particularly low interest rates.
Remember that taking out a loan is a competition: you are up against other people who want to borrow money. Improve your odds by standing out and showing that your business has more value and potential.
Your application needs to convince the lender that the money will help your company become more profitable or is essential to its continued operation, and that you will have enough revenue to pay back the loan.
What you will need to put in your application
Different business loans and lenders will require you to provide certain information as part of your application, including:
Your personal and contact details
The size, industry and age of your business
Your personal credit history and that of your business
Financial statements and cash flow projections for your business
A detailed business plan (if you're a new business)
You may also need to meet specific eligibility criteria to get approved for a loan. As such, you may also need to provide documentation of the following in your application:
Proof of collateral (on a secured loan)
Age of your business
How to get approved
When you’re given a loan, a lender wants to know that you will be able to pay it back. The lender's confidence in your business’s profitability and your ability to repay the loan decides whether or not you get approved. Tick off all of the following points for the best chance of business loan approval.
Meet the core requirements. As mentioned above, most business loans have certain eligibility criteria. Check you meet the requirements before applying to avoid wasting time on those you can’t successfully apply for.
Have a plan for the money. It’s not enough to declare that you intend to use the money for “business stuff”. Your lender wants to know that you’ll be able to pay it back and may want a detailed business spending and income plan. If the lender doesn’t think it sounds viable it may decline you.
Keep good documentation. Full doc loans usually have better rates than low doc loans because the lender has more information to judge how risky it is to approve you. Even if you’re considering low doc or no doc options, keeping the right financial information will help lenders decide to approve you.
Maintain good company credit. Defaulting on loans, having outstanding debt and lacking consistent income will all count against you if you’re applying for a business loan. If you are having any of these issues then trying to address as many as possible before taking out a loan can greatly improve your chances.
Lenders will check your credit history before deciding whether or not to give you money. For the best odds of success you should also check your business credit score so you can remedy any problems before applying.
Often lets you choose between an account with a set expiry date or an indefinite term that is maintained as long as the account is in good standing.
Can be spent on any business expense as needed.
Is typically only available to businesses with good credit scores and reliable income.
Short term business loan
A short term loan is for covering immediate costs. It gives your business quick access to cash or credit to pay for urgent repairs, emergencies or vital equipment. Repayment terms are short, typically about three months to one year, and the sums you can get are smaller than other loans.
Application is generally quick and easy.
Often available as low doc or no doc loans.
There are typically fees in addition to the rate you’re charged.
Interest rates tend to be high.
Business credit cards
These work much like personal credit cards, giving you access to funds up to a certain limit and allowing you to continuously pay back what is spent with interest. This financing option is designed to be accessible, flexible and suitable for many different businesses.
Best value for money comes from using additional tools and options offered.
Good for flexible, ongoing financing.
Many different options with different terms, fees, interest rates and benefits.
Cash flow lending
Cash flow lending is a type of secured loan that uses your predicted business cash flow as collateral. In other words, you borrow against future revenue. For example, you might get a cash flow loan to fund new equipment or staff and then use the revenue generated by these to pay back the loan.
A relatively common option for companies of all sizes.
Offers the benefits of a secured loan without needing to have tangible collateral on hand.
Typically only available to businesses with good credit ratings.
Lenders may decline you if they don’t think your business will be able to generate enough revenue to pay them back.
A relatively new product, invoice financing is a fairly specialised type of loan that uses your outstanding customer invoices as collateral. It’s suitable for businesses that are willing to trade some total profit for more consistent income. Financing involves selling the invoices that you’re waiting on to borrow a proportion of that amount, often 80–100%, depending on your business credit score and applicable fees.
Can work out to be more cost-effective overall than some traditional loans.
Offers a wide range of options and flexibilities.
Only suitable if you frequently find yourself waiting on customer invoices that you need right away.
Trade financing is a loan that gives your business the money to make trades, whether domestic or international, in currency or stock. It’s aimed at businesses that have a good track record with capital investment and can use loans to invest further. The actual lending component is usually just one part of a packaged service that includes financial technology, transaction services, risk management and advisers.
Availability is usually dependent on your business credit history.
Not suitable for covering day-to-day business costs or anything other than trading.
Fully drawn advance
A fully drawn advance is a long term business loan where you can borrow a fixed amount and then repay it with interest on a set schedule. You are often able to customise the loan with your lender to set a repayment schedule that works with your business cash flow.
Repayment periods can extend for years.
Flexible terms and a variety of options.
The main advantage is that repayments are predictable and consistent.
The main disadvantage is the risk of market interest rates going down and you needing to refinance your loan to take advantage.
Business vehicle finance
This type of loan is exactly what it sounds like; it lets you fund a vehicle purchase for your business with ongoing repayments. The actual terms of these loans vary and include choices such as borrowing money to buy a car, leasing a vehicle from the lender, getting a secured or unsecured loan and opting for a general-use or business-only car.
There are potential tax benefits as well as implications.
Many options, but some will be unsuitable for your needs.
Business financial advisers can help you navigate the tax and loan issues associated with business vehicle finance.
Elizabeth Barry is Finder's global fintech editor. She has written about finance for over six years and has been featured in a range of publications and media including Seven News, the ABC, Mamamia, Dynamic Business and Financy. Elizabeth has a Bachelor of Communications and a Master of Creative Writing from the University of Technology Sydney. In 2017, she received the Highly Commended award for Best New Journalist at the IT Journalism Awards. Elizabeth's passion is writing about innovations in financial services (which has surprised her more than anyone else).
How likely would you be to recommend finder to a friend or colleague?
Very UnlikelyExtremely Likely
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
Important information about this website
finder.com.au is one of Australia's leading comparison websites. We compare from a wide set of banks, insurers and product issuers. We value our editorial independence and follow editorial guidelines.
finder.com.au has access to track details from the product issuers listed on our sites. Although we provide information on the products offered by a wide range of issuers, we don't cover every available product or service.
Please note that the information published on our site should not be construed as personal advice and does not consider your personal needs and circumstances. While our site will provide you with factual information and general advice to help you make better decisions, it isn't a substitute for professional advice. You should consider whether the products or services featured on our site are appropriate for your needs. If you're unsure about anything, seek professional advice before you apply for any product or commit to any plan.
Products marked as 'Promoted' or 'Advertisement' are prominently displayed either as a result of a commercial advertising arrangement or to highlight a particular product, provider or feature. Finder may receive remuneration from the Provider if you click on the related link, purchase or enquire about the product. Finder's decision to show a 'promoted' product is neither a recommendation that the product is appropriate for you nor an indication that the product is the best in its category. We encourage you to use the tools and information we provide to compare your options.
Where our site links to particular products or displays 'Go to site' buttons, we may receive a commission, referral fee or payment when you click on those buttons or apply for a product. You can learn more about how we make money here.
When products are grouped in a table or list, the order in which they are initially sorted may be influenced by a range of factors including price, fees and discounts; commercial partnerships; product features; and brand popularity. We provide tools so you can sort and filter these lists to highlight features that matter to you.
We try to take an open and transparent approach and provide a broad-based comparison service. However, you should be aware that while we are an independently owned service, our comparison service does not include all providers or all products available in the market.
Some product issuers may provide products or offer services through multiple brands, associated companies or different labelling arrangements. This can make it difficult for consumers to compare alternatives or identify the companies behind the products. However, we aim to provide information to enable consumers to understand these issues.
Providing or obtaining an estimated insurance quote through us does not guarantee you can get the insurance. Acceptance by insurance companies is based on things like occupation, health and lifestyle. By providing you with the ability to apply for a credit card or loan, we are not guaranteeing that your application will be approved. Your application for credit products is subject to the Provider's terms and conditions as well as their application and lending criteria.