How To Get a Small Business Loan

Getting a small business loan can be a key step for entrepreneurs looking to start or grow their business. Whether you’re just starting out or scaling up, access to funding can make all the difference. Understanding how to get a small business loan, the types available, and the application process can help increase your chances of approval. We’ll walk you through everything you need to know about getting a small business loan so you can start making your business a success.

Overview:

• Types of small business loans
• How to get a small business loan in Australia
  • How long does it take to get business loan approval?
• Where is the easiest place to get a business loan?
• Small business loan FAQs

Types of small business loans

The process of getting a small business loan can depend on the type of loan you apply for so it’s important to understand the types of loans available before you begin the application process. There are many types of types of business loans available and these can differ in terms of interest rates, repayment schedules, and qualification requirements. The most common types of loans include:

1. Secured business loans

A secured loan requires collateral, such as property or equipment, that the lender can seize if the loan is not repaid. Because these loans are lower risk for lenders, they often come with lower interest rates and higher borrowing limits. Secured loans are ideal for established businesses with valuable assets.

2. Unsecured business loans

Unlike secured loans, unsecured loans don’t require collateral. This makes them riskier for lenders, often resulting in higher interest rates and lower borrowing limits. Unsecured loans may be a good option for businesses that don’t have significant assets but have a strong credit score.

3. Line of credit

A business line of credit is similar to a credit card. It provides ongoing access to funds up to a set credit limit, which you can draw from as needed. You only pay interest on the funds you use. This is a flexible option for managing short-term cash flow needs.

4. Invoice financing

Invoice financing allows businesses to borrow money against outstanding invoices. This can help maintain cash flow while waiting for customers to pay. It’s a great option for businesses that have significant pending invoices but need immediate cash.

5. Equipment loans

If you’re looking to purchase or upgrade equipment, an equipment loan can provide the necessary funds. The loan is secured against the equipment itself, which means lower interest rates. These loans are ideal for industries like construction or manufacturing, where expensive machinery is essential to operations.

6. Government loans and grants

In Australia, the government offers several loan programs and grants to support small businesses, especially those in regional or innovative sectors. The types of loan programs and grants between each state and territory, so it’s important to check what’s available in your own state or territory. While not a traditional loan, these programs can be a valuable resource for businesses looking to grow.

How to get a small business loan in Australia in 9 steps

The process of obtaining a small business loan in Australia can vary depending on the lender and the type of loan. However, the general steps involved include:

1. Assess your business needs

Before applying for any business loan, it’s important to assess your business needs and determine what your goals are and what you need. This includes determining the purpose of the loan and having a clear idea of how much you need to borrow.

2. Prepare documentation

Lenders will need to evaluate your business and its ability to repay the loan. To ensure your loan application process is as fast and smooth as possible, it’s a good idea to have all your documentation ready to go before you start. Typically, the documentation you will need includes:

• Business plan: detailing your operations, objectives, and financial projections.
• Profit and loss statement: to show your business’s income and expenses.
• Balance sheet: to show your assets and liabilities.
• Cash flow statement: demonstrating how money moves in and out of your business.
• Tax returns: personal and business tax returns from the last 2–3 years.
• Bank statements: generally from the past 3-6 months.
• Identification: your ID, such as a passport or driver’s licence, and your ABN/ACN (Australian Business Number or Australian Company Number).

3. Check your credit score

Many small business loans are based on the owner’s personal credit history, especially for newer businesses. However, businesses can also have a credit score and this can be an important factor when a lender assesses your eligibility for a loan. Before beginning the loan application process, it’s important to check both your personal credit score and your business’ credit score.

4. Consider which loan type you need

There are many different loan types available depending on your business needs. It’s important to explore the types of loans available and pick one that’s right for you. If you’re struggling to decide which loan may best suit your needs, it can be helpful to consult a business loan broker. A business loan broker can research all the loan types available and make recommendations based on your individual needs.

Need help deciding which loan type is best for you? Our team of experienced business loan brokers will assess your creditworthiness and your individual circumstances to find the best solution for both you and your business. Contact us today to find out more.

5. Choose a lender

When choosing a lender, it’s important to consider and compare factors such as:

• Interest rates
• Fees
• Loan terms
• Customer reviews

Loan comparison websites can help to compare multiple lenders at once, but for the best and most accurate results, ensure you use more than one website and do your own research. Alternatively, this can be a good time to consider consulting with a business loan broker. A business loan broker can research and compare lenders on your behalf, before making personalised recommendations.

6. Review eligibility criteria

Review each lender’s eligibility criteria as every lender has its own set of requirements, which may include:

• Minimum business turnover (e.g., $50,000 annually).
• A certain amount of time in operation (e.g., at least 6–12 months).
• A good credit history and financial standing.

7. Apply for the Loan

Many lenders offer fast online applications. You’ll usually need to upload your documents and answer questions about your business. Some traditional banks may require a face-to-face meeting.

8. Sign the contract upon approval

Once you receive approval and the contract, you will need to sign it and return it back to the lender. Always ensure you carefully review the terms and conditions before signing, paying close attention to:

• The interest rate, whether it is fixed or variable
• Your repayment schedule, whether it is weekly, fortnightly, or monthly.
• Any fees that may apply including setup fees, ongoing fees, or early repayment penalties.

9. Receive funds and begin repaying the loan

Once approved, the funds will be transferred to your business account and you will need to begin repaying the loan.

How long does it take to get small business loan approval?

The time it takes to get business loan approval can vary depending on the type of lender, the complexity of your application, and the type of loan you’re applying for. Generally, approval times can vary anywhere from a few days to a few weeks.

To give your loan application the best chance of a fast and smooth approval time, it can be helpful to:

• Check your credit history
• Ensure you are eligible for the loan and able to meet the lender’s criteria
• Know beforehand how much you need to borrow
• Assemble organised and accurate financial records
• Have a solid business plan
• Have a clear purpose for the loan
• Sign and return any required forms as soon as possible

Where is the easiest place to get a business loan?

The easiest place to get a business loan largely depends on your business’s financial health, your credit score, and the type of loan you need. Generally, you can obtain a small business loan from:

• Online lenders: often offer less stringent requirements (compared to traditional banks) and faster approval times as short as 24 to 48 hours.
• Credit unions: may offer a more personalised service and more flexible criteria than traditional banks.
• Major banks: tend to have stricter lending criteria, but can be a good option for established businesses with strong financials. Their application processes can be more complex and lengthy but they may offer a wide range of business loan products and competitive rates.
• Peer-to-peer lending platforms: are emerging alternatives to traditional banks and online lenders. They connect borrowers directly with individual lenders and can offer competitive rates with more flexibility, making them an easier option for certain businesses.

Ready to apply for a small business loan but struggling to find a lender?

It can be stressful navigating the many lenders and loan products out there. That’s why our experienced team of business loan brokers is here to help. We work with a wide range of lenders so we can find the right solution for your needs. Contact us today to get started without the stress!

Small business loan FAQs

Can I use my home equity to buy a business?

It is possible to use your home equity to start up a business. However, this strategy can come with significant financial risks so it’s best to seek professional financial advice before making this decision.

Can you borrow 100% for a business loan?

Borrowing 100% for a business loan is generally uncommon, as most lenders require borrowers to contribute a certain amount of equity or collateral to reduce their risk. However, there are some scenarios and types of loans where you might be able to borrow close to 100%, though they typically come with stricter conditions or higher costs.

Which bank is best for a business loan?

Choosing the best bank or lender for your business loan will depend on:

• Your business size
• The type of loan
• Any growth plans you have for your business
• The interest rates
• Your financial needs
• The repayment terms
• The specific needs of your business

As well as considering the above, it’s also a good idea to compare interest rates, fees, and loan terms.

How long is a business loan?

The length of a business loan can vary depending on the type of loan, the lender, and the purpose of the loan. Generally, business loans have terms that range from 1 to 30 years.