Small Business Loans help small businesses to manage their cash flow, invest in their business, and purchase items that are fundamental to growth. Whether that means covering bills, staff expenses, or investing in new equipment, small business loans can be tailored towards the unique funding requirements of small businesses in Australia.

What Is Classified as a “Small Business”?

The Australian Taxation Office (ATO) classifies any business with an aggregated turnover of less than $10 million per annum as a small business. This may be in the form of an individual, a business partnership, or a trust, but to satisfy the ‘Small Business’ criteria, you must be turning over less than $10 million per annum.

Choosing the Right Loan for Your Small Business

Before you apply for a small business loan in Australia, it’s important to clearly define how the loan can help your business to make a purchase, manage expenses, or fund growth. Here’s some simple questions to ask before applying for a small business loan:

  • Step 1: What is the purpose of the loan? – clearly define the purpose of the loan (expenses, new equipment etc.) and how a loan can help.
  • Step 2: How much is the loan amount? – understand and define the loan amount required to fund the investment.
  • Step 3: How much can you afford to repay? – based on your current cash flow, calculate how much your business can afford to repay and what you want your repayment terms to look like.
  • Step 4: Can you secure the loan? – do you have equipment or property that can be used to secure the loan? For senders, assets provide added security for the loan and can result in more favourable terms for the lender.

Types of Small Business Loans

There are several types of small business loans available in Australia, each tailored to different business needs:

Term Loans

These are traditional loans with fixed terms and regular payments, ideal for long-term investments like purchasing equipment or expanding your operations.

Line of Credit

A flexible form of financing that allows you to borrow money as needed. A line of credit can help you manage cash flow fluctuations.

Invoice Financing

If you're struggling with slow-paying customers, invoice financing allows you to access funds by using your unpaid invoices as collateral.

Equipment Loans

Specifically designed to finance the purchase of equipment or machinery for your business.

Business Credit Cards

These offer a revolving line of credit for everyday expenses, often with rewards programs.

Eligibility and Requirements

To qualify for a small business loan in Australia, you'll generally need to demonstrate:

  • a solid business plan
  • evidence of your ability to repay the loan
  • good personal and business credit history
  • collateral (in some cases)

Choosing The Right Lender

Selecting the right lender is crucial. Consider factors like interest rates, fees, and repayment terms. Many first-time borrowers find online lenders more accessible and accommodating, but traditional banks and credit unions also have their merits. A broker assesses a suite of lenders to find you the best loan, and has a duty of care to each client to find the best loan for your specific situation.

The Application Process

The loan application process can be a bit overwhelming, which is when a great broker can make the process so much smoother. A broker can also help you calculate the full price of your loan options, and work through the pros and cons of each to help you choose the loan to suits you. The simplified application process is usually:

  • gather your financial documents
  • choose the right loan and lender
  • complete the application form
  • wait for approval, which may take a few days to several weeks
  • review and accept the loan offer
  • start using your funds wisely!

Managing Your Small Business Loan

Once you've secured your loan, it's important to manage it responsibly:

  • Create a budget to ensure you can make regular repayments.
  • Monitor your business's financial health regularly.
  • Use the loan funds wisely for their intended purpose.

Repaying Your Small Business Loan

Repayment terms vary depending on your loan type. It's essential to stay on top of your payments to maintain a good credit history. Part of selecting the best loan for your business and your situation is choosing a loan you can service. Talking with a broker can help you understand the opportunities and pitfalls of different loans.

Loan Repayment Strategies

Your broker can help you set your repayment strategy, and give you advice on whether you will benefit from repaying your loan faster to save on interest by making additional payments.

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