- Fast and simple online application processes
- No security of property or other assets for this loan
- Available for businesses that do not meet the banks’ strict criteria
Top 10 Most Popular Small Business Loans in 2020
Small business loans are categorised into different types, being the most common: “unsecured business loans” provide short term funds for new business opportunities; “short term business loan” cover a shortfall in income due to seasonality or any other unpredicted situation.
You can find a larger variety of business loans and finance options than what big banks offer. As long as you have a genuine business purpose, you can qualify for a business loan with certain ease and not many restrictions.
More than half of Australian small businesses have access to a loan facility or credit line. Today, collateral or security is not needed to get approved for a business loan. Now, let’s go in depth and explore your best business loan options:
Unsecured Business Loans offers you funds to go through periods of low or negative cash flow in the business. Unsecured Business Loans are always a short term solution and the facility normally goes up to 12 months. Repayments with interest can be set daily or weekly. No security (collateral) is required to get a loan.
Loan Amount
$5 – $500k
Time To Funds
High
Loan Term
3 – 24 Months
Interest Rate
As fast as same day
Pro’s:
Con’s:
- Unsecured business loans are higher risk for the lender, that means higher interest rates
- Rates, terms and fees may incur higher borrowing costs
- You may need to provide a personal guarantee if the amount you borrow is too high
Think about it as a credit card. You can access funds in your account any time you need it. As a credit card, in most cases, interest only applies on the amount you withdraw and not the whole amount of funds available.
Loan Amount
$5 – $250k
Time To Funds
1 – 2 Days
Loan Term
3 – 12 Months
Interest Rate
14% – 30%
Pro’s:
- Maximum flexibly – draw and repay funds as you need them
- No minimum amount – only interest on what you draw – calculated daily
- Easy and fast application process
Con’s:
- Can be cancelled at any time and you can make repayments on demand
- Terms vary and some loans required repayments overdraft at specified time schedules
- Some incur fees even if not used
An Invoice Finance is sometimes referred as “factoring”. Invoice Financing basically means your business sells your invoices to a lender. In factoring, your business can borrow up to 80% of the invoiced amount immediately, the lender then becomes the collector of those invoices.
Loan Amount
$5 – $100k
Time To Funds
1 – 3 Days
Loan Term
30 – 180 Days
Interest Rate
3% – 5%
Pro’s:
- Injection of cash instantly – no need for long periods of time to receive payment of invoices.
- Takes away risks of late or non payment of invoices.
- Short term finance issues can be covered with Invoice Finance.
Con’s:
- Less than the face value of the invoice received.
- Most of the times it is more expensive than a loan finance.
- You will need a minimum turnover requirements – not available to new businesses without proven history in sales.
Merchant Cash Advance is when a lender offers you a lump sum in advance and, with a previously agreed percentage of your daily business gross income, lender collects repayments.
Loan Amount
$5 – $250k
Time To Funds
Fast
Loan Term
1 – 2 Months
Interest Rate
Usually 20%
Pro’s:
- Fast and simple online application process
- Instant cash injection – funds available within days
- Flexible repayments based on your business cash flow – no fixed interest payments or repayment schedule, with repayments made as an agreed percentage of sales.
Con’s:
- Available only to businesses making daily debit or credit card sales e.g. retailers, restaurants…
- Sales history must be provided by the business to guarantee repayments
- Considerably more expensive than other financing options
- No regulation on lenders, so terms and conditions can be complex
Equipment finance is a fixed term loan that allows you to purchase equipment or machinery for your business. This financial product makes the Lender the owner of the asset until the term of the contract is completed.
Loan Amount
$5k – $2m
Time To Funds
7 – 14 Days
Loan Term
1 – 5 Years
Interest Rate
6% – 15%
Pro’s:
- Minimum or no deposit or up-front payments, which keeps the working capital intact
- Flexible repayment plan, normally works around your cashflow over a term of up to 5 years
- Faster and simpler to secure than loan financing
- You could claim GST included in the lease charges
Con’s:
- Attracts higher interest rates and the costs can be more costly than loan financing
- Since the asset is owned by the lender, there is no equity built up – you do not own the equipment at the end of the contract unless you make a final balloon pay out
- Lease contracts have high early-termination fees so you have no way out even if the equipment is no longer needed
A Hire Purchase offers a longer term to make repayments. Hire Purchase is only to purchase assets. The lender owns such asset until the end of the finance term agreed.
Loan Amount
$5k – $2m
Time To Funds
7 – 14 Days
Loan Term
1 – 7 Years
Interest Rate
4.6% – 15%
Pro’s:
- It offers the choice of making repayments best suited to your cash flow needs.
- At the end of the financial term you will own the asset.
- GST credits may be able to claim
Con’s:
- A deposit is usually needed, and this may impact the business cash flow.
- It incurs a higher interest rates plus fees than a traditional loan.
- The asset is owned by the lender until the end of the contract.
A commercial bill of exchange usually covers a cashflow shortfall in a seasonal business.
Loan Amount
$5k – $500k
Time To Funds
4 – 7 Days
Loan Term
1 – 24 Months
Interest Rate
1.7% – 1.75%
Pro’s:
-
It offers the option to roll the loan over at maturity date. A commercial bill of exchange is a short-term facility
-
You can withdraw funds as needed, so it can be seen as a revolving line of credit.
-
Commercial bill of exchange provides multiple terms of interest paid at maturity and at intervals such as 30, 60, 90, 120, 150 or 180 days.
Con’s:
-
Interest margin above standard rate and payable in advance.
-
Sensitive to variable interest rates.
-
Amounts are usually for a minimum of $500,000 and fits only high turn over businesses well established.
Think about it as a mortgage. A Traditional Business Loan is a borrowing facility with a longer term. Personal assets are normally used as security to the loan.
Loan Amount
$50k – $10m
Time To Funds
Slow
Loan Term
1 – 10 Years
Interest Rate
2.97% – 12.83%
Pro’s:
- Most lenders will offer a combination of variable and fix rates
- With some lenders you have the choice of interest only or plus principle. repayments
-
Repayments schedule parallel to cash flow of your business. Loan term is normally tied to life of the asset
Con’s:
-
If you secure the loan with a non residential assets, it may incur higher interest rates
-
Minimum borrowing amount
- Approval process may take longer and it’s usually available only to well established businesses
Personal Loan is a fixed term finance facility with a variable or fixed interest.
Loan Amount
$5k – $40k
Time To Funds
7 Days
Loan Term
1 – 3 Years
Interest Rate
7.75% – 19.09%
Pro’s:
- Compared to leasing and hire purchase, a personal loan is more economical.
- Early repayments don’t incur penalties.
- Spreads the cost of the asset over a longer period of time with equal installments.
Con’s:
- Your personal credit rating is what determines the availability and amount of the loan.
- You are responsible for the repayments, not the business.
- Attracts higher interest rates than a traditional business loan.
Same as any other credit cars, a business credit card is offered against the business owner’s assets.
Loan Amount
$2k – $100k
Time To Funds
1 – 7 Days
Loan Term
Ongoing
Interest Rate
5.88% – 20.95%
Pro’s:
- Simple way of making business purchases.
- Offers an easy way to small cash flow shortfalls.
- A great way to take advantage to interest free periods when purchase for the business.
Con’s:
- Most lenders will securitise the card against personal finances rather than business assets.
- Interest rates are high.
- Considerable charges and fees even When not used.
Small Business Loans
Exclusively designed for SME sized companies, in most cases Small Business Loans need to meet a specific criteria, such as trading for at least 6 months, together with a minimum monthly gross income of $5,000. Small business loans up to $150,000 normally can be approved and funded on the same day.
What happens next?
Small business loans are categorised into different types, being the most common: “unsecured business loans” provide short term funds for new business opportunities; “short term business loan” cover a shortfall in income due to seasonality or any other unpredicted situation.
You can find a larger variety of business loans and finance options than what big banks offer. As long as you have a genuine business purpose, you can qualify for a business loan with certain ease and not many restrictions.
More than half of Australian small businesses have access to a loan facility or credit line. Today, collateral or security is not needed to get approved for a business loan. Now, let’s go in depth and explore your best business loan options:
Applying is free and it won’t impact your credit
Frequently Asked Questions
In order to qualify for a small business loan, usually the business needs a trading history of at least six months, and a monthly gross income of at least $5,000. Needles to say, business has to be able to service loan repayments.
From loan application to approval decision takes less than 60 minutes. Small business loans can now be approved fast thanks to fintech lenders technology. An easy example is the bank statement transaction history, which can be analysed in seconds, sending to the lender a credit score and then used to automate most of the decision making.
An unsecured business loan does not require business owners to offer their personal finances as collateral. What this means is, your property, vehicles and equipment don’t need to be offer as security to the lender. Lenders can not take your personal assets automatically if you default on the loan.
Fintech lenders are more agile and fast on making lending decisions with their technology. Banks have a lengthy process and involves several layers of decision makers, and they notorious for offering less than you initially requested. Fintech loans rates and fees can be insignificantly higher, which in the contest of fast access to cash, makes no difference.
Unsecured business loans incur higher interest rates than traditional big bank loans. However, you need to keep in mind the level of high risk attached to an unsecured loan. Business with inconsistent turnover and not trading for long usually pay a little more than an established business.
Absolutely, lenders allow you to pay off your loan early, however, always check before you sign. If you are in a position to pay off the loan earlier than expected, or you want the option to do so wit no penalties, make sure you make this clear to the lender.
Some of the most common eligibility criteria to get approved for a business loan includes:
- At least trading for 6 months.
- Your industry is important, lenders lend to most industries, however some are more favorable than others.
- Your financials matter, lenders rely on what they can see, and bank statements are the most crucial component for making a final decision on your loan and whether you can service the repayments.
- Your credit history and score is normally a reflection of your financial decisions.
And YES! If you are a sole trader or self employed you too can get a business loan.
Applying is free and it won’t impact your credit
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Lendor™ is a Fintech Bear Company ABN:82975330228 acts under a fund facilitator / commercial aggregator. This content does not constitute legal, tax or financial advice. Please contact your advisor for more information.Products, features and info shown are general in nature and may vary depending on individual situations, please refer to loan contract/offer for terms relevant to you.