A Short Guide to Small Business Finance

Small business finance can be a crucial step to grow your business. However, it could be challenging to understand all the sources of funding available, and which one is most suited to your needs.

Here we’ll take a look at some of the most common forms of small business finance.

Debt or equity small business finance

Small business finance can be divided into two categories: debt or equity. Debt finance is where you receive finance and need to pay the money back over a period of time. In addition to paying interest on the debt, some form of fee is usually charged as well.

With equity finance, you sell a share of your business to outside investors in exchange for funds. You can pay investor funds back to them if you wish to buy back the share in your business. You could also pay investors dividends based on the performance of your business.

Bank business term loan

A bank term loan is what usually comes to mind when people think of small business finance. A bank term loan could be from a few years up to 30 years depending on the circumstances. Unfortunately, this type of loan requires a large amount of paperwork and can take up to two months to get approval. Some businesses might even be required to submit a business plan with the application.

According to research conducted in 2017, banks rejected around 75% of term loan applications from small to medium businesses. Given this statistic, it’s understandable that many small companies would not attempt to get this type of loan.

But don’t despair, because this is where your QPF Broker comes in. We take care of the paperwork so you can spend your time where it matters. And due to our strong partnerships with the banks, most of the time we can turnaround your loan in as little as 48 hours!

Business overdraft

Business overdrafts are a common form of finance used by small to medium enterprises. With a business overdraft, you run a negative balance on your regular business transaction account. You only pay interest on the money you actually use, plus recurring fees.

Business overdrafts are relatively easy to get if your business has been operating for several years and has a good record with the bank. They can be unsecured or secured. Secured overdrafts often have a lower interest rate due to the lower risk to the lender.

Business line of credit

A business line of credit is similar to a business overdraft but it’s not automatically attached to a regular transaction account. With a line of credit, you get access to an agreed amount and only pay interest on what you use plus fees. Business lines of credit are for higher amounts than business overdrafts.

For example, the minimum business overdraft offered by one Australian bank is $10,000 while the minimum line of credit is $50,000. Business overdrafts and lines of credit are suitable for solving short-term cash flow challenges but not recommended for long-term financing needs, such as buying machinery and equipment.

Business loan from family and friends

This is a common form of small business finance for new ventures. With these types of loans, it’s important to keep everything formal. This means to have an agreement in writing outlining how and when the loan will be repaid. Having an agreement in place beforehand can save relationships with family and friends when they provide small business finance.

Equipment finance

This type of small business finance is used for purchasing specific machinery or equipment. These types of loans have terms between two to five years. While the loan is being paid off, the equipment serves as collateral, so the interest rates are competitive compared to other loans.

Unsecured business loans

This form of small business finance has been growing in popularity in recent years. Advanced technology enables online lenders to safely and securely analyse the finances of potential borrowers and quickly make a lending decision. 

Making a decision on small business finance

With any small business loan, you will want to check the terms and conditions before making a decision.

Your QPF Broker is well equipped to tailor a loan to suit your needs, and answer any questions you have. We are here for the life of your loan. Call us today on 1300 736 780 or Get a Quote.