Business Loans

Business loans in Australia

Grow your business by applying for a business loan that caters to your unique needs.

The main questions are where and how to get financed. If you have an established business, you will find out whether borrowing could resolve any problems which you have.

Small Business Loans

Why do you need to borrow money?

If your financial difficulties result from the way in which you run your business such as lower production and sales or low price mark-up then a business loan will most certainly not be the optimal solution. You can only make things worse by borrowing money. Furthermore, if the lender's assessment of your business shows that it is not in good condition, you will not be granted a loan.

Are you aiming for growth?

If you want to expand your business, you need to analyse profit margins and productivity and prepare a long-term growth plan. This is the right way to get a loan.

Additionally, you need to demonstrate to lenders that you have already invested in the growth of your company. This will give them another reason to provide support to you.

Do you have a strategy?

If you experience an urgent need for credit, then this is a clear sign that the situation has gone out of control. You will stand the highest chances of securing finance when your business has a well-developed business plan set into action, stable revenue and profit, and a sufficiently large safety margin. Lenders run a thorough risk assessment when evaluating each business loan application and have a very low-risk tolerance.

Depending on the type of loan which you apply for, it may take several months before approval is granted.

Business loans for Start-ups

How much does your business need?

You must request a precise loan amount in your application and it must be based on detailed calculations. If you do not know exactly how much you need to borrow and you use vague estimates, your application will not stand a good chance of approval.

Understand the purpose of a business loan

For obtaining a business loan, you need to present a comprehensive plan with precise figures. You need to outline what you will spend the loan amount on when you will spend it, how you will use the purchased product and what returns you plan to get on your investment. With a well-developed plan at hand, you can also use alternatives to borrowing. If you require equipment, you can opt for leasing or cost-sharing. If you need supplies, you can negotiate a flexible payment scheme directly with the provider.

Small business loans in Australia

It is a fact that in most cases the business loan process in Australia is not particularly quick and easy. You need to present a large number of documents and explain a lot of details as part of the application process, which is typically fairly length. Traditionally, banks and other lenders are risk-averse. They provide finance to businesses only when the risk of non-payment is extremely low. On the other hand, most small, micro, and medium enterprises bear higher risks. However, this does not mean that it is impossible to get finance.

You simply need to be prepared for overcoming the challenges which will come your way. Take a closer look at the main ones.

Security

The security reduces the risk for lenders. It is used for backing up a business loan. When you place an asset as security and you do not repay the loan, the lender will have the right to take over this asset and use it for recovering the incurred financial losses. Various types of assets can be used as security. Common examples include buildings, equipment, financial instruments, and investment portfolios.

The use of a personal asset as security is an option, but the financial risk is much higher in this case. The value of the security has to be equivalent to the amount of risk which the lender takes. Smaller businesses are typically riskier and this makes it necessary for them to use assets of higher value for securing finance. However, these ventures usually have fewer assets with a lower value.

Duration

Many business loans in Australia and especially those for larger amounts have a considerable approval time. The processing of the application may take two months. After the approval, it may take up to a month to access the funds. The total period from the application to accessing the loan can be three months.

The long waiting period may have an adverse impact on your business plans.

Credit history

If you have a bad credit record, you may find it challenging to get finance.

If you have had debt repayment problems, you will most certainly get rejected for a business loan. You need to resolve such issues as quickly as possible. You have to repay your debt to improve bad credit on your credit profile. When you meet with the lender, you should be fully prepared to explain your past delinquencies and what measures you have taken to prevent future problems.

Below are some essential tips for obtaining a Business loan;

1) Be persistent

It is not easy to get business finance, but it is not impossible either. You have to be well prepared and inventive to succeed.

2) Consider borrowing from family & friends

Loans from family members and friends are major sources of finance for businesses in Australia and around the world. You can use the finance to support your starting venture and then resort to borrowing from banks and loan companies. It is also possible to ask a family member or a friend to be your co-signer when you take out your first business loan. This will certainly give you a higher chance of approval.

When you borrow money from family and friends, you need to do it professionally by signing the agreement and having the funds transferred to your bank account.

3) Apply for a Business loan

Even if your chances of approval are not particularly good, you should definitely make an application.

4) Apply to several lenders at the same time

This will increase your chances of approval and save you time and effort as well.

5) Prepare a complete Business plan for supporting your application

The plan has to be all-encompassing, clear and concise, and well thought-through. You have to be able to make a presentation based on it.

6) Define a precise requirement for finance & support it

You have to explain exactly how much you need to borrow and how your investment will pay back. You will have higher chances of approval if the loan amount which you apply for is smaller.

7) Rely on patience

You should be prepared to wait for a considerable period of time before you get approved and obtain the funds.

8) Keep working towards growth in the mean time

You should exploit all alternative opportunities for obtaining finance even if you have already applied for a loan. You need to keep working on building your company and stabilising its performance. You need to focus on building equity as well. A well-established and well-performing business with considerable assets will have much better chances of obtaining finance in the future.

9) Begin on a small scale

Even if your business plans include national and international market dominance, it will take time to achieve success. The most sensible strategy is to start off on a small scale. You need to down scale your plans accordingly in order to obtain a good amount of finance for a starting venture.

10) Secure finance before you bid for a contract

You have to be certain that you will be able to fulfil your obligations if you win a contract. That is why the best strategy is to obtain finance in advance. If you have a contract, but no finance, you need to resort to alternative options. One effective strategy is to partner with a company even if it is a competitor. You will have to share the profit but will be in a better position to obtain finance and to win more contracts in the future.

11) Negotiate repayments with your suppliers

You will benefit from arranging a longer-term for payment with your suppliers. This will enable you to manage your money more effectively. You can expect suppliers to show considerable flexibility if you have been a reliable payee so far. By establishing strong personal contacts, you will be able to negotiate the best deals for your business.

12) Negotiate payments with your clients

You can work with clients to arrange deposit payments and progress payments to support the completion of the project for which they have contracted you for.

13) Use business collaboration

You can share assets with other companies or use their production facilities and share the profit with them.

Who provides Business loans in Australia?

Commercial Banks

All major banks in Australia offer business loans to enterprises of various sizes. These lenders find it risky to grant finance to smaller businesses, but they use various strategies to offset risk. Another factor to keep in mind is that they typically incur the same or similar cost for processing the applications for small and big loans. As a result, loans for smaller enterprises are more expensive as well as riskier for them. Still, this does not mean that you do not stand a chance. With a well-prepared business plan and presentation, you can get approved.

Finance Companies

These are smaller independent lenders. They focus on the provision of loans to consumers and to small and medium businesses. Sometimes, these microlenders can be more flexible than banks primarily because they offer smaller amounts of finance. Besides, they typically provide loans that are secured with an asset. When security is used, the risk for the lender is lower. This gives small businesses even better chances of approval. In most cases, the loans are used for the purchase of an asset such as a vehicle or equipment.

The purchased asset is automatically used as security.

Government Funding Programs

The Australian government, the governments of states and territories in the country, and local councils run various programs which are designed to support businesses and especially start-ups. Each program has its own qualifying criteria. Some are available to all businesses while others are designed to support those in a particular industry.

The programs can be divided into several major categories. There are programs that offer no-interest and low-interest business loans from $1500 to 10 million. Businesses can also take advantage of government-guaranteed loans from $5,000 to 250,000.

The programs for one-time and renewable grants and subsidies currently offer between $1,500 and 500,000. The programs for conditionally payable contributions provide between $10,000 and 500,000. Businesses can obtain equity financing grants and subsidies worth between $250,000 and 10 million. Additionally, there are tax breaks in the form of tax credits and tax refunds.

Venture Capitalists

These individuals and funds are not lenders, but investors. They invest directly in businesses and their goal is to get a return on their investment. The return is in the form of a share of the profit. Usually, the venture capitalist takes a position on the board of the business and has a say in its management. In most cases, these investors sell their share in the business in three to seven years. The shares can be sold to the owner of the business or to another investor.

Most venture capitalists look for investing in businesses that will bring them a return on investment of at least 30%. Most small enterprises cannot meet this target and this makes them very difficult to obtain funds from investors. Explore and compare all of your options for obtaining business finance in Australia carefully in order to make the best choice for your company.