Expert guide to business loans

Business loans are an important part of the lending sector. Companies use business loans to hire staff, renovate, expand, purchase equipment and fund day-to-day operations.

This guide will explain the ins and outs of business loans, including who offers them, the interest rates they charge and the application process they impose.

It will also explain why having bad credit doesn’t make it impossible to secure business finance.

Each borrower’s financial circumstances are unique, so while business loans will be suitable for some companies, they won’t be suitable for others.

Business loans

What is a business loan?

A business loan is a loan that a company takes out for commercial purposes. As with a home loan, you can choose a variable interest rate or a fixed interest rate. You can use the loan to launch a new company or help finance an existing company. For example, the money might be put towards hiring staff, renovating, expanding, buying equipment, buying vehicles or funding day-to-day operations.

What are the pros and cons of business loans?

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The great advantage of a business loan is that it allows you to invest in your company with somebody else’s money. Done properly, a business loan will provide a return that exceeds the amount paid in interest.

Paying interest is one obvious disadvantage of a business loan – and this can become even worse if you have a variable-rate loan and the interest rate increases during your loan term. To qualify for the loan, you’ll have to provide lots of paperwork and submit to a time-consuming review process. The lender will probably expect you to provide property or business assets as security; these could be seized if you default on the loan. Another disadvantage is that the loan will appear as a liability on your balance sheet, thereby affecting the value of your company.

What interest rates are charged for business loans?

Business loans are generally pricier than home loans, although the interest rates are significantly less than those charged by business credit cards.

How much can I borrow with a business loan?

There’s no set amount that lenders are prepared to extend to companies – it can range from thousands to millions, depending on the size of a company, its balance sheet and its needs.

Generally, the more secure and profitable your company seems, the more money you will be able to borrow. That’s because a more successful company is more likely to repay a loan than a less successful company. As part of the assessment process, lenders will what to know how long your company has been trading, what its balance sheet looks like, what the loan will be used for and a whole host of other questions related to its past, present and future performance.

Who offers business loans?

The big four banks offer business loans, as do a host of smaller banks and non-bank lenders.

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How do you get a business loan?

You can apply for a business loan by approaching a lender directly or by going through a finance broker.

Securing a business loan is often a time-consuming process, because most lenders won’t provide finance until they’ve gained a detailed understanding of your company.

What do you need to apply for a business loan?

Requirements differ from lender to lender, but you’ll probably have to provide at least two years’ worth of tax returns, balance sheets, and profit and loss statements. If you’re starting a company, you’ll probably be asked for a detailed business plan and proof of personal income.

How hard is it to get a business loan?

It’s usually harder to qualify for a business loan than a home loan, because it’s harder for the lender to assess your repayment capacity. That’s because while individuals tend to have a fairly consistent spending and income profile, a company’s finances often bounce around.

As a result, you’ll have to make a case to a lender to prove you deserve a loan. This can be a time-consuming process involving a lot of paperwork – but it will probably be easier if you have a good finance broker handling the application on your behalf.

How long does it take to get a business loan?

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It usually takes several weeks to get a business loan – and sometimes several months.

Securing a business loan is often a time-consuming process, because most lenders won’t provide finance until they’ve gained a detailed understanding of your company.

What is a secured business loan?

A business loan is ‘secured’ when the borrower offers up an asset (such as property or business equipment) as collateral or security. The lender can then seize the asset if the borrower fails to repay the loan.

What is an unsecured business loan?

A business loan is ‘unsecured’ when the borrower doesn’t offer up an asset (such as property or business equipment) as collateral or security. Lenders charge higher interest rates on unsecured loans than secured loans.

What can be used as security for a business loan?

Residential property, commercial property, company vehicles, company equipment and even the company itself could be used. Please note that conditions vary from lender to lender.

How can I get an unsecured business loan?

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You can apply for an unsecured business loan by approaching a lender directly or by going through a finance broker.

Lenders regard unsecured loans as riskier than secured loans, so they are likely to charge higher interest rates and lend less money.

What is a business overdraft?

A business overdraft is a facility that allows you to take out more money than you have in your account. You only get charged interest on the money you borrow.

Overdrafts provide a quick and easy way to solve short-term cash flow problems.

What is equipment finance?

Equipment finance generally refers to a business loan that is used to purchase a piece of equipment, with that equipment then used as security.

Sometimes, when people refer to equipment finance, they also mean a business loan that is used to lease a piece of equipment.

How are business loans regulated?

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Banks that offer business loans are regulated by the Australian Prudential Regulatory Authority (APRA). Non-bank lenders that offer business loans are regulated by the Australian Securities & Investments Commission (ASIC).

Bad credit business loans

What is a bad credit business loan?

A bad credit business loan is a loan for companies or entrepreneurs with a troubled or insufficient borrowing history. The loan must be used for commercial purposes.

Who offers bad credit business loans?

Bad credit business loans are offered by small, non-bank lenders that specialise in this type of finance.

How do you get a bad credit business loan?

You can apply for a bad credit business loan by approaching a lender directly or by going through a finance broker.


^Words such as "top", "best", "cheapest" or "lowest" are not a recommendation or rating of products. This page compares a range of products from selected providers and not all products or providers are included in the comparison. There is no such thing as a 'one- size-fits-all' financial product. The best loan, credit card, superannuation account or bank account for you might not be the best choice for someone else. Before selecting any financial product you should read the fine print carefully, including the product disclosure statement, fact sheet or terms and conditions document and obtain professional financial advice on whether a product is right for you and your finances.

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