Whether you’re just starting out as an entrepreneur or running your own show for over a decade, having the right business loan on your sleeve can be an important factor in your success. When used responsibly, business loans not only help maintain the company during difficult times, but are also useful when additional funding is needed to seize growth and innovation opportunities.
About the author
Catherine Ochi is the lead business banking writer for Australian financial comparison site Mozo, digging into bank fineprints and sharing the latest money tips with businesses to help them make smarter financial decisions. I will.
Some companies may not be aware of just the number of options available on the market, from standard business loans and credit lines to more specialized options for invoices and equipment. Depending on your company’s needs and financial position, some of these business loans will work better for you than others.
Whether you’re considering buying inventory or need a cash flow safety net, understanding the purpose of a loan is often the first step in finding a match. To guide your search, we worked with a colleague at Mozo.com.au to announce six of Australia’s most popular business loan types. Read a snapshot of the main features.
Unsecured business loan
- No collateral required
- Suitable for multiple business purposes
- Rapid loan approval time
This is a bread and butter business loan that can be used for a variety of purposes, including stock purchases, overhead payments, and increased daily cash flow. As the name implies, unsecured business loans do not require security and are a good option to consider for small businesses that do not want to put their assets on the line.
Please note that some lenders may require the employer or board to provide personal guarantees instead (that is, if the business fails, they are responsible for repayment of the loan. Masu).
Given that unsecured business loans are more risky to lenders than secured loans, the amount you can borrow (usually up to AU $ 200,000 to AU $ 500,000) and duration (months to years) May be more limited in terms of range). .. However, the smaller size of the loan also means that this type of finance can be approved sooner, and non-bank lenders like Moula and Bizcap promise access to decisions and financing within 24 hours.
Secured business loan
- Need collateral
- More loan amount available
- Can be rented for years
Financing large investments like real estate and other businesses will not be easy with a company wallet. Secured business loans often come with much larger loan sizes and much longer loan terms than unsecured loans, helping to meet these more stringent financing needs.
For example, Heritage Bank’s Fully Drawn Loan does not have a maximum loan amount, and borrowers can repay for up to 15 or 25 years, depending on the type of security.
Of course, this financial type has a higher stake because it requires collateral for family homes, company cars, etc. This makes it increasingly important to have a repayment plan to prevent loan defaults and asset losses. However, the advantage is that by ensuring security, the borrower also has a lower risk and may be able to get a lower interest rate.
- Professional loan
- Protected against the device itself
- Can be used with tax incentives
Equipment loans are exactly that. A type of business finance designed to assist in the purchase, repair and leasing of equipment such as agricultural machinery, automobiles and coffee makers.
However, keep in mind that equipment loans are a special type of financing and do not give you the flexibility to fund non-equipment purchases. As such, they are primarily aimed at companies struggling to get equipment upgrades or replacements out of their pockets. The collateral for this loan type is usually the device itself. This is good news if you want to avoid using assets you already own as securities.
Equipment loans have recently proven to be particularly popular, thanks to the boom in agricultural spending. In fact, between 2019 and 2020, the major bank NAB saw a 130% surge in farm equipment funding. This is due to a variety of factors. Introducing government tax incentives such as favorable seasonal conditions, soaring commodity prices, and temporary full expenditures that allow qualified companies to claim immediate tax credits on depreciable assets, including equipment.
- Continuous access to finance
- Pay interest only on what you use
- Suitable for non-uniform cash flow
These are uncertain times, so it makes sense if you need a business loan to help you manage sudden fluctuations in cash flow. This is where the credit line comes into play.
Like a credit card, the credit loan line includes the ability to withdraw the required amount up to the approved limit. The big advantage here is that you don’t have to pay interest on the money left in the drawdown facility. This can reduce your overall mortgage cost.
Credit lines such as Zip’s business loans act as a buffer to fill the working capital gap and are particularly attractive to companies with unpredictable cash flows because they are not obliged to use up all available funds. As business operations grow or slow, lenders may also offer the option of increasing or decreasing facility limits as circumstances change.
However, this flexibility comes at a cost. You may need to consider additional charges such as drawdown charges (charged each time you withdraw from the facility) and line charges (charged to keep the facility open).
- Turn unpaid invoices into funds
- Suitable for business with corporate customers
- Protected against the invoice itself
According to a survey, late-paying customers are a big problem for SMEs, and accounting platform MYOB revealed last year that 38% of SMEs face financial stress due to late payments. Invoice financing is a way around this.
Invoice Finance is a credit line that provides access to the capital contained in unpaid business invoices. Lenders typically provide up to 85% of their invoices to the business in advance, and once the customer has paid, send the rest (excluding fees and fees) later.
Fortunately, invoice financing is usually protected against the invoice itself and does not provide other assets as collateral. However, all invoices are charged and can be more expensive than traditional bank loans.
Buy now, pay later
- Zero interest rate (fees apply)
- Rapid approval time
- Repay in installments
Buy Now PayLater (BNPL) services have exploded steadily over the past year, but consumers aren’t the only ones crazy about it. Business owners, especially young entrepreneurs, are the next big target market for more and more BNPL providers.
Like a credit line, BNPL allows you to borrow as much as you need, up to a certain value. However, the difference (and its main selling point) is that no interest is charged on the withdrawn funds, only fees apply. The borrowed amount will be repaid in a series of fixed installments.
For example, Zip recently announced two interest-free BNPL accounts. Zip Business Trade, which has access to up to A $ 3,000 for daily expenses such as office supplies and social media advertising, and a much higher cap of AU $ 150,000 for large purchases including stocks and equipment. The only cost for the first account is AU $ 12 per month and there is no recurring fee for the second account, but 3% if you choose to spread the repayment over 4 months instead of 2 months There is a charge.
These BNPL accounts have less cash injection than the other business loans described above, so the approval process is expected to be quick. 10 minutes for ZipBusiness Trade and 24 business hours for Zip Business Trade Plus.
Tips before applying for a business loan
Always remember, no matter which business loan type you ultimately choose.
- Check eligibility criteria. Many lenders require your business to be traded for a minimum amount of time or earn more than a certain amount of income, which may be negotiable.
- Borrow responsibly: Just because you can borrow more doesn’t mean you should. Therefore, unless you get a credit line, it is useful to look up your budget and calculate the exact amount and repayment amount (and whether you can afford it) for the additional funds you need.
- Understand the charges: It’s time to dig into the details. In addition to interest rates, check any other charges you may be hit. Some common things to note include establishment, continuous, late payments, early repayments, and exit fees. Also, check if these rates are flat or percentage based. Note that in the latter case, the more you rent, the higher the cost.
- Weigh the bell and whistle. Do you need the option to make early repayments without penalty or the freedom to change your repayment schedule based on cash flow? Some lenders offer these perks to make them more competitive, so it’s worth paying attention to additional features when shopping.
- to shop: Instead of going with the lender you first saw, use a business loan comparison website like Mozo to weigh your options. According to the Mozo database, interest rates at banks can range from 2.29% per annum to nearly 10% per annum.
Are you ready to apply? Check out Mozo’s list of Australia’s top business loans.
These are the most popular types of business loans in Australia
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