Understanding Small Business Loans in
Australia
Finding financing for start-up businesses or the growth of a small to medium sized businesses can be tricky for business owners. The market is filled with lenders offering to help small business owners; however, the wording and the terms and conditions of the loan can be difficult for even the savviest business owners to understand.
Small business owners often find that many of Australia’s financial institutions and banks are unwilling to lend them money for a start-up business or to make changes to a small to medium sized business that they are trying to keep afloat.
As a small business owner, it is essential that you research all of your options before signing a loan contract because there are many business loans out there with unfavourable terms and conditions and high interest rates. In addition to this, many small business owners settle for a business loan that is a much lower amount than what they were hoping to secure. This can cause a business owner to make changes to their business projections and even result in taking out a second or third loan to get them the money they need. Taking out several loans can be dangerous and can further complicate a business’s financial security.
Although small business loans are difficult to obtain, a business owner can seek out the best business loan to help them start up a company or grow their current business without being charged high interest rates or other terms and conditions that can actually hurt the business.
Learn How Much the Loan is Going to Cost Your Business and Any Upfront Costs or Hidden Fees
Australia is filled with lenders, banks and lending agencies that are seeking to take advantage of business owners that are facing financial difficulties. Many lenders realize that a business owner can face economic hardships when starting a business. These lenders use this to their advantage and charge exorbitant fees and high interest rates. These lenders press the business owner to sign loan paperwork quickly in an effort to maximize their own profits.
Lenders may try to tempt small business owners by advertising and promoting extremely low interest rates such as a small business loan with a 1 percent interest rate. Although this loan would help a small business, the lender may make up for the low interest rate by charging large fees and expecting large repayments. The hidden fees associated with these loans are often quite steep and often occur when a business owner is seeking only a small loan amount. Oftentimes, these loans end up costing you more than a loan with a higher interest rate that does not have hidden fees. The payback of these low interest loans is often much higher than a loan with a higher interest rate.
Determine the Interest Rate of the Loan and Ask for a Payment Schedule So You Can Know When Your Payments Are Due
Fixed Interest Rate Versus Adjustable Interest Rate Loans – Another thing that a business owner must understand is the different types of interest that can be charged on a business loan. In Australia, there are two different kinds of interest rates offered by lenders – a fixed rate loan and a variable rate loan.
A fixed rate loan is a loan that has a set interest rate. The interest rate will not change over the loan term. Fixed rate loan payments will be exactly the same throughout the entire length of the loan. This type of loan can make budgeting a breeze.
A variable interest rate will change depending on Australia’s current market conditions. This can result in paying a higher or a lower interest rate depending on the current state of the market. As your payment amount can change when the interest rate changes, it can be difficult to budget for your small business loan.
Fixed loans are often considered the best choice for small businesses who run on a tight budget. This type of loan will help you plan for and budget your monthly payment. Additionally, a fixed interest rate can help provide stability to your business. Even small increases in your interest rate can make paying your payment more difficult, which is why you should not depend on a variable interest rate. If your business is stable and the market conditions are good, then a variable loan may save you money.
Documentation of Your Business Plan, Financials and Other Important Paperwork You Will Need
Most financial institutes will require you to provide them with a complete business plan when you apply for a small business loan. The documentation and business plan must be thorough, detailed and include financial projections. If you already have this paperwork, then applying for a loan and providing the documentation for the loan should not be an issue. If you do not have a detailed business plan for your small business, you may need to search for a lender who requires less paperwork. Low doc small business loans are available through a few lenders in Australia.
A lender may want you to fill out simple forms that contain information about your business and your accounting data. These lenders are easier to work with and the securing of a loan is not as time consuming as others. This type of lender is perfect for those businesses that have a tight schedule.
Getting Your Company’s Finances in Order is More than Paying off a Loan
A small business owner must be able to manage their money if they want to succeed. Money management is important for both individuals and businesses. Once you have been approved for your small business loan, it is important to not be tempted by the sudden influx of cash. Small businesses that have been using second hand, or outdated equipment, may be tempted to purchase all new equipment when the money from the proceeds of the loans was earmarked for other means. Spending the money incorrectly can be devastating to a small business owner.
To help prevent this from happening, you need to create a budget for your current income and a budget for the money that you are receiving from the small business loan. This will help keep you on track and avoid overspending, which can make it difficult to pay your monthly loan payment on time.
Finally, it is essential that you understand the conditions associated with a loan payoff. For example, certain loans have prepayment penalties. If you decide to pay off a loan early to save on interest, there could be a fee charged for this. By understanding your loan paperwork, you can avoid unnecessary fees.
The Different Types of Loans that Can Help Your Situation
There are several different types of small business loans. You can apply for a line of credit for your business or a short term business loan. These loans offer several different funding options that are not available with traditional small business loans offered by the banks. Approximately 50 percent of all small businesses in Australia currently have an active small business loan. Furthermore, many of these loans require that you put up collateral for the security of your loan. At LoanOne in Melbourne, Australia, you will not need to offer collateral to secure your loan.
We have several different types of small business loans to choose from, including:
- Unsecured small business loans
- Business overdraft protection
- Business finance loans
- Bad credit small business loans
- Equipment financing
- Trade financing
- Business lines of credit
- Invoice discounting
Let’s take a look at the different types of small business funding available.
Unsecured Business Loans
An unsecured business loan requires no collateral to secure the loan. This type of loan is often a short term loan with a maximum loan term of twelve months. The loan will be repaid with either daily, weekly or monthly interest. In order to get a quick approval, you will be required to show the last six months to a year worth of bank statements. This information will help the lender determine how much money should be offered based on your trading in the past. Unsecured loans are often used to pay tax bills, finance unexpected expenses, pay for marketing campaigns or other business requirements.
Business Finance
Almost 70 percent of Australia’s workforce is employed by the 2 million small to medium sized businesses. These businesses are considered large companies by international standards. Most of these businesses do require some type of business funding. One of the most common barriers to the development of new business, improved goods, enhanced service, methods or processes is the lack of additional funding.
Business funding can be used to startup, run and grow a small business. This type of funding can help purchase equipment, increase trade or provide a cash flow to startup companies.
Business Overdraft
A business overdraft facility covers business expenses when cash flow is low due to trading terms of customers or seasonal changes. Small or medium sized businesses within Australia supply approximate 55 percent of the goods and services to all Australian businesses. A business overdraft facility covers any cash flow shortages or helps you out when you need extra time to complete your orders. This type of financing can also be used to make small business purchases.
If you are a small business owner searching for financing, it is important to understand what is involved when taking out a business loan. You want a company that is easy to work with, offers competitive rates, terms and conditions. If you do not have a detailed business plan that includes future forecasts, look for a company that offers low doc business loans. Finally, make sure that you understand the terms and condition and whether the loan has any prepayment penalties for early payoffs.
Equipment Finance
If you are in need of equipment for your small to medium sized business, check out equipment financing. This type of financing is available for immediate use in as few as two days. Australia’s non-banking business lenders typically offer the best rates and terms for equipment financing. The most common type of equipment finance is a new loan with a loan term greater than one year. The second most common type of equipment finance is a finance lease or a hire purchase agreement. Equipment leases are the answer to a number of issues facing a small business owner. These loans are often used to finance necessary expenses like computer equipment, computer software, business vehicles and manufacturing equipment.
One of the best Australian lenders is located in Melbourne, Australia. LoanOne is a trusted source of financing for small to medium sized businesses. Their terms are good and they work with business owners to secure the financing they need to start up or keep their business afloat. If you have any questions about the type of loan that you need, give one of their loan officers a call today. They will be happy to sit down and discuss each type of loan and help you determine the best loan for your small to medium sized business.