Compare small business loans

Today, small business loans come in all shapes and sizes. This means businesses have plenty of finance options to choose from and don’t have to rely on the standard business loans banks offer. 

Whether you need a term loan to cover a shortfall in your cashflow or fund major projects, or an ongoing credit facility, it’s important to consider all your options. We cover everything you need to know about small business loans.  

Key points about small business loans  

• Small business loan interest rates range from 10-25% p.a.
• Business loans are either secured or unsecured
• The median amount requested for a small business loan is $30,000 in 2023 (unsecured)
• A quarter of small businesses (25%) get a business loan for day-to-day capital or buying transport vehicles

What is a small business loan? 

A small business loan is financing for your small-to-medium enterprise (SME) provided by a lender. To qualify for a small business loan, typically a business needs at least six months of trading history, and a monthly turnover of at least $10,000 to be able to service the loan repayments. Generally, you can get approved for a small business loan of up to $150,000 on the same day. 

Secured vs unsecured business loan — What's the difference? 

Business loans typically fall within two categories — secured and unsecured. 

1. Secured business loan: Requires using an asset as collateral for the loan — usually property — although some lenders allow you to use equipment or other physical assets to secure the loan. Interest rates are lower on secured business loans as there's less risk to the lender. The lender could reclaim the asset(s) secured against the debt to cover any losses. 

2. Unsecured business loan: Doesn't require any collateral for the loan. Instead, the lender will look at your creditworthiness and business revenue to assess your serviceability. Unsecured business loans have higher interest rates to reflect the additional risk to the lender. Borrowing amounts may be limited. 

How much can you borrow with a small business loan?  

The median amount requested for a small business loan is $30,000, according to Lend proprietary data. However, how much you can borrow will depend on your business size, borrowing capacity and the type of loan you apply for.  

• If you opt for an unsecured business loan, you could borrow between $10,000 and $500,000
• You could be eligible to borrow up to $5million with a secured loan (with collateral).  
  

Use our business loan calculator to determine how much you can borrow.  

Who's eligible for a small business loan?

The minimum eligibility requirements for small business loans include:  

• Australian citizenship or permanent residency
• An active ABN or ACN
• At least six to 12 months of trading history
• Minimum $10,000 monthly revenue
• The ability to provide financials or bank statements
• A good credit score — the minimum credit score for business lending is around 400.

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Types of small business loans explained  

Multiple financing options are available for small businesses, including unsecured business loans, ongoing credit facilities and alternative finance. Each has its own benefits and disadvantages to consider.

Unsecured business loan 

An unsecured business loan is short-term finance without security, typically used to cover immediate business requirements. Unsecured business loans charge higher interest rates because the finance isn’t backed by a physical asset or something of value, leading to the lender taking on more risk. You’ll repay the loan and interest daily or weekly. 

Unsecured business loans are suitable for most small businesses as they only sometimes qualify for bank loans or face longer waiting periods for lending. This type of business finance is quick to secure and ideal if your business needs cash quickly. 

What can you use an unsecured business loan for?
You can use an unsecured business loan for any business activity, including boosting working capital or investing in inventory, equipment, renovations, hiring new staff, etc. Some business owners use this type of business loan to cover cashflow fluctuations and even for new business opportunities.  

Traditional secured business loan  

A traditional business loan is a longer, fixed-term secured borrowing facility, like a mortgage. This type of financing requires you to use personal or business assets to secure the loan — usually property. Because of this extra security for the lender, secured business loans often offer lower interest rates compared to unsecured loans.

Traditional business loans are commonly available from big banks and online lenders. You can use secured business loans for expansion, fit-outs, buying competitors, etc.  

Personal loan  

A personal loan allows you to borrow a set amount of money to be repaid with interest over a fixed term. Repayments are usually monthly and include loan service fees. While you borrow as an individual, because it’s unsecured finance you can use a personal loan for business to buy goods and services (e.g. equipment, marketing), to consolidate debt or pay off other necessary expenses. 

Personal loans are available from bank and non-bank lenders. You typically need a personal credit score of 680 or higher to get approved for a personal loan for business.  

Business credit card  

A business credit card provides instant access to funds on credit to cover cashlow shortages and business expenses (ideally during the interest-free period). Some business credit cards offer rewards points for travel, office equipment purchases and other business expenses. Some offer lower interest rates or low annual fees.  

Business line of credit 

A business line of credit works like a credit card. It gives you access to an agreed amount of money annually, that you can access anytime. Your borrowing capacity for a line of credit will depend on your credit score and accounts receivable. Often with a line of credit, you will only pay interest on the drawn down amount, not the whole facility. You only have to repay what you’ve actively borrowed.

A business line of credit can help manage cashflow shortages, but should not be used for long-term investments or major purchases. 

Invoice finance 

Invoice finance or ‘factoring’ allows you to borrow against your outstanding invoices. You basically ‘sell’ your payable invoices to a lender to secure funding. The lender will advance you up to 80% of the value of the invoiced amount and become responsible for collecting payment. 

You can use invoice finance for any business purpose, like buying new machinery or paying tax debt. Invoice finance is also suitable for businesses that struggle to access other types of financing, such as startups.

Merchant cash advance 

A merchant cash advance is an alternative financing model that provides a lump sum payment, which you repay using an agreed percentage of daily EFTPOS credit and debit card sales, plus fees charged by the lender. 

Equipment finance 

Equipment finance, also known as asset finance, is a fixed-term loan or lease used to purchase or lease equipment, plant or machinery for your business. The lender will either lend you the money to buy the asset or you may choose to rent the equipment from the lender. This works like a leasing agreement, which means repayments are classified as a business operating expense and, therefore, tax deductible.

Chattel mortgage  

A chattel mortgage works like a secured car loan but for vehicles or assets purchased for business or commercial purposes. Under this financing arrangement, you get ownership of the asset from the outset which is used as security for the loan until it’s paid off. Your business can claim the interest on payments and tax depreciation if the asset is used to produce income. This is different from a hire purchase or finance lease whereby the lender buys the assets and leases them to your business in exchange for regular payments.  

The 5 components of a small business loan 

Small business loans have five main components that will determine the exact cost of borrowing:  

1. Principal: This is the loan amount (what you’re borrowing) 

2. Interest rate: The percentage rate at which you'll repay your loan to the lender. Some lenders may use a factor rate you convert into an annual percentage rate (APR)

3. Term: The length of the loan (how long you have to repay it) 

4. Repayment frequency: How frequently you must make your repayments (e.g. weekly, monthly) 

5. Fees & charges: Upfront and ongoing fees charged on the loan (e.g. establishment fees, admin fees)

Expert tips on how to find the best finance option for your business 

Chief Operating Officer at Lend, Phil Druce, shares some tips on how to put your best foot forward when applying for business finance. 

Go with a non-bank lender 
Online lenders have more lenient lending criteria and faster application processes because they use technology to analyse your business profile, credit report and business bank transaction data. They’re also less regulated than banks. Alternative online lenders also offer plenty of loan options that don’t require collateral.  

Speak to a business loan broker 
Business loan brokers are experts in business finance, meaning they can give you tailored advice and match you with the right loan. They can also help with your loan application process and even apply with small business loan providers on your behalf. 

Match the type and term of finance to your business needs
For example, you can cover fluctuations or shortfalls in your working capital with a flexible, short-term business loan or business overdraft. If you’re making a big purchase or want to fund an expansion, you’ll need a long-term loan with a repayment schedule that matches your cashflow.  

How to apply for a small business loan  

Here’s what most lenders will assess or may ask when you’re applying for a business loan.

1. Your financial documents

Lenders will want to assess your cashflow and ability to repay the loan in full. You (and any directors or partners) will need to provide financial documents and other paperwork, including: 

• Bank statements for the business from the last six to 12 months
• Business registration and tax information (e.g. BAS statements, tax returns)
• Identification documents

If you require more than $150,000, you'll need to also provide: 

• Profit and loss (P&L) statements (prepared by an accountant)
• Business balance sheets
• A business plan outlining how the funds will be spent

2. Your business information  

Lenders will also look at your business trading history and experience to ascertain the viability of your business and its future performance. They’ll want to see:  

• Proof that you’ve been operating for the lender’s minimum required period
• How your business is structured (e.g. company, partnership, joint venture, sole trader)
• The location of your business
• The industry your business operates in
  

3. Proof of collateral and capital  

If you have to provide collateral for the loan like property, land, vehicles or other assets, you'll need to show proof of ownership. You will be asked to provide:  

• Proof of ownership of your home or asset(s)
• Value assessments and documentation of assets
  

 Your assets will be recorded in the Personal Property Securities Register (PPSR), which is the database of security interests of personal property in Australia.   

4. Loan purpose

Lenders will want details on how you plan to spend your borrowed funds, when you can start making repayments on the loan and the duration of the loan term. They may ask for:  

• A business plan
• Financial projections for the business if approved for finance 
  

Lenders will also take into account the industry your business operates in when assessing your eligibility for finance. You can also get a business loan if you’re a sole trader or self-employed individual. It’s best to speak with a business loans broker if you have more eligibility questions as a broker will have access to many different types of lenders. 

What happens after the loan application?

Lenders will assess your requested loan amount versus the creditworthiness and revenue of your business to determine your eligibility and either provide you with an instant response online or seek further documentation. Once approved, you can sign the loan agreement (electronically) and get the business loan funds within a few business days — sometimes on the same day!

Why do small businesses need funding?  

According to proprietary Lend data, the most common purposes small businesses apply for finance in 2023, are:

• Day-to-day capital: 25%
• Buy vehicles or transport: 24% 
• Buy machinery and equipment: 21% 
• Expansion: 8% 
• Other (e.g. marketing, inventory, hiring staff, etc.): 6% 
• New fit-out or renovations: 4% 
  

Common reasons your business loan application may be declined 

Getting rejected for a business loan may be attributed to (but not limited to) any of the following reasons: 

• Your business financials don’t reflect your ability to meet your repayment obligations 
• You haven’t been in business long enough
• You have too many debt liabilities
• The outlook for your industry is not promising or your industry is too high risk
• Your business is seasonal
• The majority of your revenue comes from a handful of suppliers
• The business owner or director has bad credit

Sources: 
1. Proprietary data of small businesses who applied for finance through Lend.com.au and have been operating for at least five years (2023).