When choosing a small business loan in Australia, it’s important to be fully informed about all of your different options.
There are many lenders in Australia offering different types of business funding, which makes for a lot of prospects to sort through when looking for the right option for your business.
This article will give you a quick run-through of what to look for when you’re choosing a small business loan.
How you want to access your funds
Whether you need to access your funds on a semi-regular basis, or if you need funds upfront and in full, will determine what kind of finance you require. A business overdraft or cash flow funding solution is designed to help manage short-term cash flow, while an upfront loan may be better suited to buying new business equipment or funding expansion.
Loan Terms
Upfront loans are paid back in regular intervals consisting of a portion of the loan plus interest. The repayment amount will depend on the term and length of the loan. To discuss what kind of loan term is right for your business, give us a call on 1300 736 780. We’ll help calculate what repayments may be manageable for your business.
Essentially, the longer the loan term, the lower the repayment amount may be per instalment, but the overall interest cost will generally be higher.
Security
Secured loans can often be cheaper than unsecured business loans, however they also require you to put up collateral or security. This can include various types of assets, including property or business assets.
While secured loans can attract lower interest rates, be aware that lenders can take action against the secured asset if repayments are not maintained. For this reason, many business owners aren’t comfortable using their personal home as security for smaller loans.
Many businesses also don’t own assets that can be used as security, which is why some borrowers explore low doc and no doc finance options.
Fixed Vs Variable Interest Rates
There are two main interest rate structures commonly offered on small business loans: fixed and variable.
A fixed rate remains unchanged for the duration of the loan term. A variable rate, on the other hand, moves with market conditions. With a fixed rate, the lender generally bears the risk of interest rate changes, while with a variable rate the borrower takes on more of that risk.
While a variable rate could result in lower costs over time, it can also expose your business to higher repayments if interest rates increase.
Fee Structures
Different lenders structure their fees differently. These may include establishment fees, monthly fees, early repayment fees and exit fees.
While one lender may advertise a lower interest rate, you could end up paying more overall once fees are included. Ensuring you account for all costs, including hidden fees, gives you a much clearer picture of the true cost of a loan.
If you’re unfamiliar with some of these finance terms, our small business loan jargon buster can help simplify them.
Business Documentation
Some lenders, particularly banks, will ask for detailed business documentation when applying for finance. This can include profit and loss statements, cash flow projections and financial history.
Some lenders require less documentation and may instead assess business performance using accounting and transactional data.
At QPF, we have access to more than 40 lenders and work with you to understand your business goals and tailor a finance solution to suit your needs. We take the hassle out of sourcing the right loan so you can get back to business.
Call us on 1300 736 780 to discuss your options or get a quote online now.
