Everything You Need To Know about Small Business Loans in Australia

Its interesting to note only 15% of businesses on average in Australia take out long term loans. Meanwhile, around 24% of the total of small businesses use credit cards to extend their finances.
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When you run a business, whether large or small, cash flow is paramount to keep it running. There may be times when you need to arrange for finances you need, either from personal funds or borrowing from family and friends. However, there can also be times when considering small business loans may be more appropriate. If you’re from Australia, then you’ll definitely find this information useful as 99.8% of businesses in Australia fall under the small business category. Read on to learn more.

Table of Contents

Starting Off

Before you go in for a small business loan, you will need to prepare and understand what you want the loan for and other details like how you will pay it back. I reccomend you keep the following tips front of mind:

What do you want the loan for?

This is one of the first questions you need to answer. The answer to this question will help you decide what kind of loan you need. Sometimes, you’ll need funds to expand your business.

Sometimes, you’ll need a loan for new equipment. There may be times when you just need extra funds to get through a leaner period. However, the first step is to know what you want the loan for.

What is the loan amount you are looking for?

Depending on why you need the loan, you can calculate the loan amount you will require. If you are looking at buying new equipment, you will have an approximate idea about how much it will cost. In some cases, it may not be that easy to calculate the loan amount.

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Its interesting to note only 15% of businesses on average in Australia take out long term loans. Meanwhile, around 24% of the total of small businesses use credit cards to extend their finances.

What type of loan do you want: secured or unsecured?

Now that you know what you want the loan for and how much you want, it is now time to decide whether you want a secured or unsecured loan. Both options have advantages, but you need to decide which is the most preferable for you.

Here’s a breakdown of each type of loan:

Secured Loans

  • With secured loans you offer something that the lender can use or sell in case you default (cant pay). One such example is your property.
  • The interest rate for a secured rate is lower than the interest rate for an unsecured loan.
  • Secured loans offer you a slightly longer repayment time. This makes it good for long-term loans.

Unsecured Loans

  • With unsecured loans no security is offered to the lender. Thus this kind of loan is a higher-risk loan for the lender.
  • Due to the high risk to the lender, the interest rates for unsecured loans can be quite high.
  • Unsecured loans are generally only short-term loans.

What kind of interest rate are you looking at: fixed or variable?

All loans give you the option of selecting a fixed or variable rate of interest.

If you go for a fixed interest rate loan then the interest rate is fixed for the term of the loan. This way, you’ll know exactly how much you have to repay per month till you have paid off the loan in full.

In the case of a variate interest rate loan, the rate of interest may vary over the loan repayment term. So, if the rate of interest goes down, you will have to repay less. However, if the rate of interest goes up, you will end up repaying more.

We would suggest you go with a fixed interest rate loan in general as majority of small businesses need that security to plan – but do shop around.

What are the fees, charges, and hidden costs?

Make sure you also factor in the various fees and additional costs involved in securing a new business loan. Try and get information on these costs or ask an expert to help out. For example, the average interest rate for small business loans is between 3.75% to 10.25%. Some of the costs you may come across however include:

  • Application fees
  • Monthly fees, if any
  • Fee for early repayment of the loan. What will you be charged if you repay the complete loan earlier than the repayment date.
  • Fees on exit, if any

How will you repay the loan?

Before you take out the loan, you also need to have a plan in mind on how you are going to repay the loan. You will have to study your options: the loan amount, the repayment period, and the interest rate.

Based on those, you’ll need an approximate idea of how much you will have to pay back each month. So as not to default on your loan, you need to be able to cover the repayment cost in your calculations

Keep your documentation ready

Keeping the last point in mind, you must have all the documentation ready at hand so that you are clear about what you want and how you will repay the loan. The lender will require you to present the documentation and will use that documentation to decide whether or not they should give you the loan. Its also worth checking with your accountant before you apply for the loan in case they have any useful information they can provide to support.

Small Business Loans in Australia – Terms to Know

There are some terms that you need to be aware of if want a small business loan in Australia. I thought it would be good to spell them out. They are as follows:

  • The principal amount, which is the amount that you want to borrow. If you have a good credit score and a good past record, the chances of getting a loan are higher.
  • The rate of interest which is the rate the lender will charge you for the loan. Higher-risk loans attract a higher rate of interest. The interest is charged on the principal amount so make sure you always check the fine print. You may be offered a lower rate of interest, but there may be hidden costs that might give you a unwelcome surprise later on.
  • The repayment term, which is the time that you have to repay the loan. A short-term loan could be as little as a few months while a long-term loan could run for years.
  • The repayment frequency is the frequency of repayment. Usually, this could be a monthly payment.
  • There may also be fees or other hidden costs. Please make sure you read the fine print before agreeing to anything. You do not want to get a shock or unpleasant surprise later on. Get an expert opinion if possible.

Factors Affecting Small Business Loans

There are certain factors that can affect the size of the loan you might be able to get for your small business. They’re as follows:

The Principal

The amount of money that you can borrow will depend on a lot of factors. Lenders will look at the strength and health of your business, your credit score, whether or not you have debts, and the type of industry you are in.

Lenders are sometimes risk-averse and will not touch a high-risk proposal. If they feel you cannot repay, they will either refuse the loan or cut the principal amount down (ie amount they are willing to lend you). Alternatively, they may charge very high interest rates. If you are in a high-risk business or are in a field that is already oversaturated, this may work against your favor for example..

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The Rate of Interest

As mentioned earlier, the rate of interest will be higher in a high-risk business. Also, unsecured loans will attract higher interest rates. But do keep in mind that someone may offer a lower interest rate, but may have hidden costs that may surprise you later. So be careful.

What Do You Require to Get a Small Business Loan?

To get small business loans in Australia, you will require the following:

  • An Australian Business Number (ABN) or an Australian Company Number (ACN)
  • Your business should have been running for 6 months or greater
  • Your business mush have a minimum turnover of $5000 per month

It can be difficult for a startup to get a business loan as you will be seen as high-risk. Also with no data or previous performance details, its unlikely lenders will be willing to give you a loan.


What kind of credit score do I need for a small business loan?

To get a small business loan, you would need a credit score of at least 500-600.

How do I get a first-time small business loan?

If you are a startup and want a first-time business loan, it could be an uphill task. You may need to have a successful business running to get a loan. For a startup, you may have to try your own funds, borrow from family and friends, or crowdfund.

However, if you are already working with a steady income and are starting a new business on the side, you will enhance your chances of securing a loan if you have a water-tight proposal with proper documentation.

Can I get a business loan with no money?

It is pretty difficult to get a business loan if you do not have money. In such cases, you could try borrowing from family and friends. You could also try crowdfunding.

Is it difficult to get a small business loan?

It is not that difficult to get a small business loan if you have a good track record, a good credit score, and a good proposal with proper documentation. Keep in mind that the better and more detailed your proposal is, the better are your chances of getting a loan.

So ensure that you provide all the necessary documentation while applying for the loan. Best of luck.

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