Business borrowing guide stage 4: Loans for established businesses

Business borrowing guide stage 4

How to find financing when your business has cemented its position.

It's not only startups that need financing. If you've worked hard to establish your business and have had the ball rolling for some time, you still might find periods where cash flow fluctuates or times when you need to make a purchase or investment to increase your profits. This guide is for finding the right financing for those needs.

How do you define an "established" business?

Established businesses are well past the startup phase and have found a position for themselves in the market. These businesses have an existing customer base and are earning a profit that has allowed them to expand their operations. The product or service these businesses offer has been tested and is in demand in the market.

Common funding needs for established business

Established businesses have different funding needs to startups. These businesses are already earning a profit, so the funds they're looking for are usually to fund a new venture, invest in expanding their operations or ease cash flow fluctuations.

  • Cash flow. Each business has cash flow challenges at one time or another, and depending on the nature of the business, established businesses can go through periods of big fluctuations that affect their profitability.
  • Investing. The investment could be to refurbish your office space, develop a new product or expand your marketing activities. Established businesses need to be able to grow just as much as startups, and financing can help businesses achieve this.
  • Expanding. If the business is growing, owners might need funds to hire new staff, purchase new equipment or move to a new business location. Business expansion funds can also be used to purchase an additional storefront location.

What types of finance are available?

There are three main types of financing that an established business can consider using: debt finance, equity finance or funding from internal funds (business profits).

Feature Debt finance Equity finance Internal funds
Where to find it
  • Banks
  • Credit unions
  • Alternative business lenders
  • Angel investors
  • Family and friends
  • Venture capitalists
  • Public float
  • Business cash flow and profits
How much you can borrow $1,000 to $1,000,000 However much the business can raise Depends on business profitability
What happens You pay the debt back over the loan term with fees and interest The financiers may hold part of your business or get a say in decision-making Your business cash flow will be affected
  • You don't give up control in the business
  • Established businesses are more likely to meet eligibility criteria
  • There's a range of loan types available
  • You may be able to raise higher amounts than debt finance
  • You don't need to repay the funds
  • Your business doesn't take on debts
  • Investors may provide strategic benefits
  • You don't give up any control in the business
  • You don't need to repay the funds
  • Your business doesn't take on debts
  • You may need to provide security for the loan
  • Business profits need to be used to repay the debt
  • Finding equity finance can be a slow and difficult process
  • You may be required to give up some control of the business
  • You may have conflicts with investors
  • You may not get the funding you require
  • This will affect your business cash flow
  • If you experience a downturn you will not have the same level of cash to fall back on

How to compare business loans

There is a range of business loan types to compare, and it's important to compare them and find the right one for you. Use the points below to guide your comparison:

  • Does it have a fixed term? Fixed term loans are a great option if you only want to borrow a lump sum and want to make regular repayments. If you aren't 100% sure on how much you need to borrow, a line of credit might be more suitable.
  • How much will your repayments be? Business loan interest rates are calculated in a few ways. Find out how the lender will calculate your rate and also what ongoing costs apply to determine your repayments. This will help you compare a loan's competitiveness.
  • What loan amounts are available? Lenders usually have a set minimum and maximum amount. Make sure the loan you need is within that range.
  • How quickly will you receive funding? Depending on why your business needs the loan, you may require funding by a certain time or date. Most new alternative lenders can give you funds in 24 hours, while banks usually take longer.

Is my business eligible for a loan?

Each lender will have its own set of criteria that will determine your business's eligibility for a loan. While lenders use the various details included on your application to work out if your business can afford the loan, it also has minimum criteria. Here are the criteria your business needs to meet with the following lenders:

Lender Eligibility criteria Find out more
  • Be a registered Australian business or an Australian citizen or permanent resident
  • Have been operating for two years
  • Have a minimum annual turnover of $500,000
  • Directors have a Equifax Score greater than 510
  • Be an Australian company or trustee
  • Have more than one employee
  • Be operating for at least 9 months
  • Make at least $250,000 in revenue
Business Fuel
  • Have been operating for at least one year
  • Have been trading in the same location for one year
  • Make at least $10,000 per month in total sales
  • You have 12 months left on your lease and the rent is up to date
  • Have been operating for at least six months
  • Have a minimum turnover of $10,000 per month
  • Have been trading for at least nine months
  • Make $10,000 in sales per month
Kikka Capital
  • Be an Australian sole trader, partnership, business, company or trust
  • Have an ABN that's been registered for at least 12 months
  • Have a monthly turnover of $10,000
  • Have been operating for at least 12 months
  • Be a sole trader, a partnership with up to two partners or a company with up to two directors
  • Have a valid ABN
  • Be at least 18 years old and an Australian citizen or permanent resident
  • Have an Australian business and residential address
Max Funding
  • Own an asset OR
  • Be trading for at least six months AND
  • Have stable monthly turnover of $6,000
Merchant Cash
  • Have been trading for at least 12 months
  • Make at least $5,000 in monthly sales
  • Have been operating for at least 12 months
  • Have a fair credit history
  • Make monthly sales of at least $5,000
  • Have been operating for at least 12 months
  • Currently be operating in Australia
  • Have had an annual revenue of at least $100,000 in the past 12 months
  • Not be operating in a restricted industry (check OnDeck's website)
  • Your business will be evaluated on its viability using the ProspaScore
  • Have been operating for at least 12 months
  • Have made at least $100,000 yearly revenue
  • Be a corporate SME
  • Be borrowing to grow the business
  • Startup companies must have industry-experienced directors and have a tangible net asset position

What fees and rates should I expect?

Each business loan product will come with a separate set of fees and a different type of interest rate. Here are some costs to watch out for:

  • Interest rate. The rate may be structured as a standard rate, that is, charged on your outstanding balance, or it could be a factor rate, which is a decimal figure that's charged on your principal and doesn't compound. Check whether the rate is fixed or variable, as well.
  • Upfront costs. See whether you will be charged an application or establishment fee, which will likely be a few hundred dollars.
  • Ongoing fees. These can be daily, monthly or annual fees and are charged as a cost for servicing the loan.
  • Late and default fees. If you fail to make a repayment on time, your direct deposit fails or you default on the loan, you will be charged a fee.
  • Other fees. See if you will be charged to repay the loan early, make additional repayments, top-up the loan or redraw additional payments.

Questions to ask before deciding on finance

How much do you need to borrow?

Depending on how certain you are about this amount, it may affect your loan type choice. If you need a significant amount of finance it may be worth looking into equity finance or a large line of credit. If it is a large loan amount, consider the debt your business will be taking on.

How will you repay the loan?

Will you use projected or actual business revenue? What will happen if your business experiences a downturn? These are the questions you need to ask and factor into your projections before you apply for the loan.

Do you have an asset to use as security?

This could be a real estate property, either residential or commercial, or it could be a vehicle. Offering security for the loan can lower your rate and let you borrow more.

How good is your business credit score?

You will have a personal credit file and a business credit file, and a business credit score. Some lenders, such as OnDeck, let you check this for free.

Will personal and business credit files be checked?

Some lenders will need to verify your personal credit position as well as your business's credit position. Make sure you will be able to meet the credit criteria for either.

Can you repay the loan early?

Your business may be in a position to repay the loan early, and doing so will save you fees and interest. Find out if this is possible without a fee.

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