A business loan gives a company a chance to succeed or try new adventures.
Lenders evaluate the company’s history, the amount of debt the company has and whether the business seems risky when you apply for a business loan. A business loan is a debt that the company ought to repay according to the loan’s terms and conditions.
It is important to know the bank offering the best business loans in Australia, but more important for you to understand how the loan works and what is expected by the bank. Australia has a range of business loans to choose from, you choose the one that suits your business needs and its affordability. According to business loan statistics Australia, in 2017, the average business loan size was $663,000. While in May 2019 value of the business loan totalled over 153 billion Australian dollars.
Things you should consider doing before applying for a business loan
Business loans packages vary based on the amount of the loan, interest rates and the repayment period. Hence, it is best to apply for a loan when you truly in need of it. However, here are the few things we want you to look at before applying for a loan:
Start with a business plan
A well-written business plan will convince a lender to give you a business loan. Lenders want to know the type of business you are running and if ever you have the knowledge and skills required to grow your business into something great. Including your business goals, competitors, past and projected revenue and expenses, market analysis, and how you intend to grow your company.
Prepare financial statements
Your business finance is important to the bank so that the bank can see your goals clearly and know that you will be able to make enough money to pay them back. Include balance statements for the past three to five years, your cash flow statements, income statements and show your estimates for these statements for the next few years, accounting for all seasonal changes in your business and how you will use the money you are borrowing.
Understand the costs of the business loan in the end
Before committing to anything, find out the offers the bank will give you. Use the interest rates and fees to estimate your payments. Know all the terms and conditions attached to each loan offer before you decide which one will be best for you. And add up all your payments to see how much the loan will cost you.
Research your borrowing options
The business loan package varies from each bank. Don’t fall for large banks that seem to have great offers before you investigate smaller banks. Research all your options, you are sure to find a bank that will give you the loan you need.
The types of business loans you can find in Australia
Australian have several business loans from the bank you can choose from, depending on your business finance. Here are business loans available in Australia:
Traditional bank term loans
A business loan from the bank requires a lot of paperwork. It is a secured loan, with low-interest rates. However, it takes time to get approved, which can be up to two months. Furthermore, Australian banks reject almost 74% of small businesses that apply for a business loan.
Business credit cards
The most popular form of small business finance in Australia. They have high-interest rates. But if you pay off the amount within 55 days of the charge, you don’t pay any interest. Before the credit card is granted to you, the provider will want basic details such as income and length of time in business.
It allows you to run a negative balance on your regular transaction account up to a predetermined amount. You pay the funds that are overdrawn from your account with interest and you will be charged fees, including an establishment fee and a regular accounting fee.
The business line of credit
You can borrow a certain amount but only pay interest on what you use. You are flexible to use the money only when you need it. You are also free to repay the money at your own pace. The business line of credit starts at a $50,000 minimum, so if you are looking to borrow a lower amount, a business line of credit is not an option for you.
Business equity loan
It is a form of a loan that is secured against residential or commercial property. With business equity, you can borrow up to 100% of the value of a residential property used as security for the loan and get a competitive interest rate. But your property is at risk if you get into financial difficulties and cannot make the payments.
Low-doc or no-doc business loan
It is mainly for those who don’t have financial statements and proof of income for the previous two years. They are backed by residential property. They have high-interest rates due to the increased risk to the lender.
The guide to Australian business loans
When you take a bank business loan, you should be extra careful. A loan can help you improve your business while the same loan can be the downfall of your business. When a business takes out a loan with a higher interest rate, it should make plans to pay the loan back as quickly as possible, so the interest owed does not accrue into an exorbitant amount. When you take a business loan, you should look for the following things:
- Variable or fixed interest rates.
- Split loan facility
- Switch facility
- The size of the loan you need.
- Ablility to repay the loan, through extra payments
- Redraw facility
- Able to make lumpsum payments with no extra fees
- Portability of the loan.
Australia’s common bank business loan requirements
When you apply for a business loan, your business will be examined to determine its affordability. And the following documents will be required:
- Annual revenue; businesses are required to bring in annual revenues of $50,000 to $150,000.
- Net operating income; most lenders require a total income that’s at least 1.25 times greater than your total expenses, to ensure you can meet repayment requirements.
- Age of your business; your business should be two years and older to qualify for a business loan.
Which bank that offers the best business loan
Every Australian bank that has a business loan has its unique offers and terms and conditions. According to what we have observed, every Australian bank offers the best business loan. Each bank has a package that is designed for a certain type of business. So, when you need a bank business loan, it is wise to use a loan comparison site that will allow you to compare and choose the best loan for your business needs while accounting for its affordability.