Business Loan
Open up your options with a Business Loan
A business loan offers the financial power to take your business to the next level or the capital to start your new business journey. We discuss some important things you need to know before we start the process.
Process
Secured
Unsecured
Terms
Process
You may need access to funds at any stage of your business journey. Whether it is the kickstart needed to get to the next stage of growth, or to get your business idea off the ground or any stage in between. A business loan is any lending being put towards a business but this can come in many different forms and a range of sources. There is a bit more perceived risk from banks when it comes to assessing business lending so the process can be slightly different.
Business History
Most lending options will look to the businesses past performance in order to assess your ability to repay the proposed lending. For main banks, the preferred amount of history is at least 2 years and this is usually evidenced through a set of financial statements. Non banks may not require as much evidence and can take a less restrictive approach to assessing lending.
​
When you don't have the history to support your business or your looking at starting a new business then the lender will turn to your personal capabilities to operate the business successfully. This can mean relevant history in the same industry or any prior business experience.
Documents
In order for lenders to assess your application for lending, there will be some extra documents they need. This can range vastly from lender to lender. At the bank level this is a set of financial prepared accounts covering the last 2 years. On the lower end, it may just be 6 months of business bank statements. For short term funding options, some lenders may not require any evidence to support your income if you have a plan in place to pay off the lending. Because there is so much discrepancy, speaking with an adviser that has access to a range of lending options can make sure you are getting access to the best lending product.
Secured
As with all lending, if you can provide an asset to secure the loan then the terms you get access to are more favourable. Common security examples include residential housing, vehicles and company assets. There are pros and cons to providing security which we can review further.
Bank Housing Security
The most affordable form of business lending would be adding it onto your home loan. This process is similar to regular mortgage lending top ups and you may be eligible for residential interest rates and terms. The downside of this is increasing your liability against a property, which for a lot of people means your own home. Your lender may be able to use your house as security but their policies mean that you would be provided with business rates which is less affordable. So it can be worth reviewing your options with a mortgage adviser.
Non Bank Housing Security
There are non bank options which can use a property as security but provide a lot more flexibility than main banks. If you equity available then a refinance to a non bank can provide extra funding on flexible terms. Their assessment terms can also be much lower so where a bank may not have been able to provide the funding required, a non bank could.
​
Some non bank lenders can provide loan products through a second mortgage. This means they have a mortgage on your property, but behind the lender which is original mortgage. This allows you to keep the majority of your lending with your main bank but you can take advantage of the non banks flexible products.
Asset Security
Outside of housing, there are still other assets which lenders are willing to take as security. A common example of this is vehicles which works in a similar way to housing security. The lender gets an asset to help mitigate the risk of the lending but the asset isn't as long lasting as a property. So you can get access to more lending and more favourable terms than if you had no security, but not as long term or rates as low compared to housing security.
Unsecured
If you don't have access to an asset or you don't wish to provide security for your business finance application, then there are still options available. Typically the amount of funding available is lower but there are both potential main bank and non bank options.
Unsecured
If the lender doesn't have any security then they are reliant on you repaying the loan without having any asset to fall back on. With this higher risk, the available rates are much higher and you will be expected to pay over a short term usually a few years. To limit the risk, the amount they are willing to lend is a lot lower than with secured options. Maximum lending is typically around the $50,000 to $80,000 range.
GSA Lending
General Security Agreement lending is included in this category as well becuase it doesn't require a large asset like a house or vehicle etc. However, it is still a form of security and means that the lender has a security interest over all the present and future assets of the business the charge is registered.
​
For this increase in liability it is worth discussing with your accountant to ensure you fully understand the impacts. The benefit is getting access to much more lending than the fully unsecured options and terms a bit more favourable. Not all of the main banks are competitive in this space so it is worth running through with an adviser to see what options are available. Maximum lending is typically around the $200,000 range.
Terms
Business lending is subject to different terms than residential lending. As the options above show, there can be various different sources of lending. Exact terms will be subject to your individual circumstance but below is an indication into what terms may be available.
Loan Terms
If the lending can be done as residential then you can have repayment terms out to 30 years. For non bank flexible options there may be no minimum repayment requirements, rather a credit limit which will be subject to interest similar to a revolving credit. For GSA or Asset Lending the loan term may be around a 5 year period but for low impacts on cashflow, repayments may be based on a longer term.
Interest Rates
Depending on the security and overall application, the interest rates you receive may be offered as 'business rates'. These will be higher than the residential rates available which can sometimes be applicable. If no security is supplied, or some other aspects of your application are perceived as risky for the banks, then the interest rates you're offered will be higher.
Extra Fees
Non banks may charge additional fees to have flexible facilities in place. This can include an application or lender fee when the loan is taken out. Or ongoing fees charged based on the limit. Lenders all have different pricing policies so working with an adviser can help to understand all your options and get you access to the best pricing and flexibility offers. Depending on the lender policy an adviser may need to charge a fee for completing the application in some cases.