Unless you have substantial savings, every small business can benefit from some financial support to get up and running. Loans for business owners can also provide ongoing assistance to ensure cash flow and continuity.
Whatever line of business you’re in, you may be eligible for various types of finance. Read this overview of the most common loans for business owners in Australia and talk to our financial experts for professional advice and help finding the best business finance option for your needs.
The most common finance option for small businesses, loans for business owners and self-employed tradies are designed to be flexible and affordable, as long as you meet the eligibility criteria and repayment schedule.
Business loans may be secured or unsecured.
A secured business loan requires nominating a high-value asset (such as a house or car) to be used as collateral for the loan. In the event that you can’t pay back the loan, this asset may be seized and resold to help the lender recover their costs.
An unsecured business loan does not require collateral, so can involve less risk. However, these loans typically have a higher interest rate or fees and stricter eligibility criteria compared to secured loans.
There can be many costs involved in establishing and growing a business. If you need to invest in vehicles, technology or other equipment or assets for your business, some loan providers offer specialised transport and equipment loans, allowing you to spread the upfront cost across a series of affordable repayments.
These loans can cover an extensive range of equipment, including new and second-hand purchases. Like other business loans, they may be secured or unsecured, but in most cases the vehicle or equipment in question is used as security for the loan.
Like a personal overdraft, a business overdraft is an arrangement with your bank that allows your business account to run into a negative balance up to an agreed limit on a short-term basis. Interest is charged on this negative balance until it’s repaid.
This ensures that any urgent expenses can be paid when needed, as long as you can pay off the balance before incurring expensive fees. A business overdraft can be a convenient fallback, but it’s generally for smaller amounts than a loan and only offered to businesses that have already been operating for a number of years.
A line of credit is similar to an overdraft, but is generally used for higher amounts. This provides a buffer if you have urgent expenses or you’re struggling with cash flow, as long as you can afford the interest payments and don’t exceed your credit limit.
As interest and fees can be higher compared to loans for business owners, a line of credit is recommended only as a short-term measure rather than for financing major investments. Interest rates for lines of credit are usually variable rather than fixed, meaning they will vary based on market forces.
If your cash flow relies on invoices being paid, an invoice finance loan or invoice funding allows you to borrow most of the value of these invoices from your lender until full payment is received, with interest and possible fees for the service.
Invoice funding ensures your cash flow won’t be impacted significantly if customers or other parties are late sending payments. In most cases, lenders will cover around 80% of the value of invoices upfront and the remainder once the invoice has been paid. You will continue to manage your own invoicing and communications unless you delegate this to your lender.
You may not be approved for a small business loan if you’re buying into a franchise system, especially if the franchise isn’t well established. However, lenders are increasingly offering specialised franchise finance options for these situations.
Depending on your needs, you may be able to find funding for joining a new or established franchise. The loan may also be used for purchasing or refurbishing commercial premises, buying plant and equipment and ongoing working capital for your franchise. Franchise loans have similar terms and requirements to other types of loans for business owners.
Depending on your circumstances, you may be eligible to apply for a government or non-government grant or support program to help cover some of the costs of getting your startup off the ground.
To apply for a grant, you will normally need to be a registered company and meet other strict eligibility criteria.
Paying business expenses on a credit card can be convenient, and involves lower barriers than a business loan or taking out a line of credit, but interest payments are usually higher and credit limits significantly lower.
Some credit cards may offer interest-free periods, rewards or other perks, but you should always evaluate the overall borrowing costs and be confident that you can pay off your balance when required.
Another possible source of finance for businesses can come from investors who may be willing to invest in promising startups, or venture capitalists seeking to fund more established and successful businesses.
Investors can provide capital and connections to help your business grow and thrive, but you should be wary of investors who seek a measure of control or a larger stake in your company.
If you don’t meet the eligibility criteria of loans for business owners, or you need a little extra help, you could consider reaching out to friends and family for a smaller amount.
However, this type of borrowing can put a strain on relationships, especially if circumstances change or there are disagreements down the line. To minimise the risks, it’s important to treat the arrangements professionally and make sure loan agreements are in writing.
With so many options, talking to an advisor could help you to understand what type of business finance is the best fit for you. Our business lending specialists can work with you to explore your options and tailor a lending strategy that will help your business to grow and thrive.
After graduating year 12, Dan began his banking and finance career at Westpac Banking Corporation in Brisbane in 1988. He worked for the bank for seven years, excelling in his career and working his way up to management.