Small business loan basics for Australian Start-Ups

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Small business loan basics for Australian Start-Ups

There are lots of reasons why you might need funding for your small business, such as buying property, equipment or stock, hiring new staff, or covering fluctuations in cash flow and working capital.

There are also lots of different types of finance to choose from, ranging from long-term secured business loans to merchant cash advances. To get a good understanding of the options and their various pros and cons, check out this comprehensive guide to Australian small business loans.

The groundwork

Before you can take any steps towards getting your loan, you need to take a careful look at your business and work out:

  • How the loan will help you build your business (what you’re going to do with the money)
  • How much you need to borrow
  • How much you can afford to pay back
  • How quickly you can repay it
  • What assets, if any, you can offer as security

These answers form the framework of your business case for taking out a loan. You’ll need them in order to establish which funding options are actually available to you (for example, you won’t be able to get a secured bank loan without sufficient assets to offer as collateral), and to help you decide which type of funding to pursue.

Choosing your lender

When it comes to choosing a lender and loan product, it’s crucial that you match your needs with the right type of finance, for example:

  • Cover long term needs like buying property with long-term finance, so that you wont be caught out having to find new finance after a few years
  • Make sure you have cash on hand to cover unexpected costs by arranging flexible short-term financing, like an overdraft facility or business credit card

For Australian small businesses, applying for a loan from a big bank can be complicated and time-consuming – and unfortunately, all too often, unsuccessful. Unless you have security, a long financial history, an excellent credit rating and consistently high turnover, many forms of bank finance may simply not be an option.

Currently, banks in the US approve only around 17.8% of commercial loan applications, while non-bank lenders approve close to 65%. Small business lending in Australia is on the same trajectory, with more and more businesses turning to alternative sources of business finance – including online lenders specialising in unsecured loans. These ‘fintech’ lenders use far less rigorous criteria to assess your business, and can often evaluate your application within a matter of hours.

While non-bank lenders might seem like the ideal option, there’s an inevitable flip side to this relatively easy access to cash – online lenders tend to charge higher interest rates, to compensate for the increased risk. Some types of non-bank financing like merchant cash advances are not subject to government regulation, so they can impose prohibitive charges and restrictive loan terms.

For that reason, it’s vital that you choose your lender with care – make sure you know who is underwriting your loan and get full details of the fees and conditions attached to the loan before you apply.

Preparing to apply

To secure any type of loan you’ll need to convince the lender that your business is a good risk – and the key to that is preparation: gathering key information about your business and financial position ready to answer all the lender’s questions.

The information you’ll need to supply will depend on the type of financing you plan to seek, but is likely to include:


  • Business plan including SWOT and strategic plan
  • Cash flow projections and trading forecasts
  • Full financials – P&L, balance sheet, cash flow statements for up to three years
  • Credit history
  • Personal financial data (for personal loans or financing where you will be acting as guarantor)
  • Details of assets to be offered as security

Non banks

  • 4 – 6 months’ bank statements
  • Credit sales / merchant statements
  • Documents to prove how long you have been in business

Applying for your loan

Applying for a bank loan begins with making a formal application, either online or on paper. You may also need to meet with a representative of the bank to supply supporting documents and discuss your requirements. The approval process can take several weeks or even months.

Applying for non-bank financing is generally much quicker and easier, and can often be completed entirely online. Fintech lenders use different metrics than the banks to assess your business credit worthiness, and in some cases the loan can be approved and the funds in your bank account within the day.

Like any financial decision it is important to seek expert financial advice.


Sarah Miller

Sarah writes about her personal journey, learning, life optimisation and her passions. For more thoughts and ideas, you can connect with Sarah on Twitter

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