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Small Business Finance Options For Australians

 
 

The one important thing most small business owners spend most of their time thinking about is money. You can’t start a business or expand it without money. Whether you are looking for funds to kickstart a dream project or support your startup when the fund is running low, there are small business loans that can help you achieve your goals.

With a plethora of small business finance options available in Australia, it can be daunting for you to decide which one is right for your business. To make it easier, we have gathered information on the different types of loans and finance options available.

So, grab a cup of coffee and read on to find details about the various small business loans available for Australians.

1. Business Overdraft

The old-fashioned overdraft facility is still a significant means of financing short-term cash flow for small businesses to ensure uninterrupted transactions. This is a line of credit that enables users to spend up to a maximum credit limit even when the business account with the lending institution is empty. So, small businesses can continue to make purchases or withdraw money even when there’s no fund in the account. Business overdrafts can be of three different types:

  • Unsecured credit without any guarantee
  • Commercially secured credit against a commercial property like store or shop
  • Residentially secured credit against a residential property such as your home

Who can benefit from Business Overdraft facility?

Overdrafts are useful for contracting businesses where you need to pay your staff weekly but the customer pays only after job completion. It helps in maintaining the working capital when there’s a gap between business expenses and customer payments.

An overdraft comes handy when your business has the opportunity to purchase discounted stock or needs to meet an unexpected operating expense. It can also support the cash flow when the business is running low during offseason.

Pros:

  • Flexible credit options and repayment schedules
  • Pay interest only on the overdraft funds
  • Helpful in managing seasonal or irregular cash flow
  • Extra financial security when you need it the most

Cons:

  • Higher rate of interest
  • They have a maximum limit
  • Hefty fines if you spend beyond the limit

Rate of interest

Business overdraft facilities usually have variable interest rates, however, some lenders may be willing to negotiate on a fixed rate. The rate of interest may be between 5.07% – 12.45% p.a.

Where to look for Business Overdraft facility

Some of the Australian financial institutions that offer business overdraft facility are ANZ, Commonwealth Bank, ME (ME Bank), NAB, RaboDirect, St.George, and Westpac.

If you are looking for alternative options, take a look at the information on line of credit, trade finance, and commercial hire purchase.

2. Equipment Finance

Equipment finance provides funds required to purchase a specialized machinery or equipment to run your small business. With this type of small business loans, you can go ahead and purchase the machinery without having to pay for it upfront. In other words, you get the money from the bank to purchase the equipment, enjoy all benefits of ownership and pay off the sum over a period of time.

Who can benefit from Equipment Finance?

Some businesses require a wide range of machinery and equipment to operate successfully or stay ahead in the competition. This type of small business loans is perfect if you are looking for finance options to purchase a new plant to expand your business, heavy machinery, latest IT devices, specialized medical equipment, and so on.

Pros

  • Small or no upfront payments, reducing the impact on working capital
  • Flexible repayment plans up to 5 years
  • Wide range of options to choose from, based on your budget

Cons

  • Higher rate of interest than loan financing
  • Too many choices to confuse you
  • Lease contracts have high early-termination fees

Rate of interest

The interest rate offered will be based on how much you pay over the duration of your loan, so look for a low rate of interest. It usually varies between 6-15% p.a.

Where to look for Equipment Finance

Some of the Australian financial institutions that offer equipment finance are NAB, MiFinance, GetCapital, MaxFunding, Merchant Cash, Spotcap, and Ondeck.

If you are looking for alternative options, check out the information on unsecured bank loan, business credit card, and hire purchase.

3. Business Credit Card

Business credit cards are often issued to business owners to help them meet their various financial needs. It can be issued to a wide range of companies, from small business to large corporations. The biggest advantage of a business card is that it helps you keep your personal and business expenses separate. You can assign cards to your employees, track your finances, manage cash flow and enjoy the perks by earning rewards.

Who can benefit from Business Credit Card?

Almost any type of business can benefit from a business credit card that enables them to purchase consumables and fill the gaps in cash flow. It can be used in whatever way you like to ensure your business runs successfully.

Pros

  • Offers a convenient way to make purchases
  • Reliable source of emergency cash flow
  • Some cards offer interest-free periods

Cons

  • Higher interest rates
  • Some cards may be linked to your personal account
  • Hidden fees and charges even when the card is not used

Rate of interest

The interest rates vary widely depending upon the financing institution. It may be as low as 5.88% or as high as 20.95% p.a. Some business cards may have an annual fee ranging between $0 and $700.

Where to look for a Business Credit Card

Some of the Australian banks that offer Business Credit Card are ANZ, Australian Military Bank, Bank Australia, Bank of Queensland, and Bank of Melbourne.

To look for alternative small business finance options, check out the information on line of credit, business overdraft, merchant cash advance, etc.

4. Line Of Credit

Almost every business faces a situation when the operating expenses increase and the funds run low, and this is when a line of credit comes in handy. Although it sounds similar to a business overdraft, there are several differences that make it a better option. The biggest advantage is that while a business overdraft is used only when an account becomes negative, you can use a line of credit anytime.

Who can benefit from a line of credit?

Small businesses often hit a phase when operating expenses are higher than cash flow, and this is where a line of credit can be useful. It enables you to pay down expenses by having an easy access to a revolving line of credit that can be used for ongoing expenses or unforeseen emergencies.

Pros

  • Flexible options to draw funds when you need
  • No minimum limit for borrowing funds
  • Pay interest only on the funds used
  • Simple application process

Cons

  • No long-term guarantee as the credit can be canceled at any time
  • Lending terms vary widely
  • You may need to pay fees even if you don’t use the credit

Rate of interest

The interest is calculated on the amount borrowed and not what is approved by the lender. The rate of interest may vary between 5.07% and 12.45%.

The line of credit usually includes one-off fees such as establishment and application fees. In some cases, they may include other fees such as ATM fees, annual charges and transaction fees.

Where to look for Line Of Credit

Some of the Australian finance institutions that offer a line of credit are ANZ Bank, Bank Australia, Arab Bank Australia, and Citibank.

If you are looking for alternative small business loans, check out the unsecured business loan, business overdraft, and merchant cash advance facilities.

5. Commercial Hire Purchase

Also known as Corporate Hire Purchase or CHP, Commercial Hire Purchase is the most common type of vehicle finance for small business loans in Australia. CHP loans allow business owners to make easy monthly installments towards a car purchased for the business purpose.

The biggest difference between a car loan and Commercial Hire Purchase is that in the latter case the lender purchases the vehicle and then hires it to the buyer until the loan is repaid. So, the business owner can use the car but he is not the real owner.

Who can benefit from Commercial Hire Purchase?

Commercial Hire Purchase is a good finance option for small business owners who don’t want to block funds by buying a car. It is easier for them to manage monthly payments.

Pros

  • Borrower gets tax deductions by claiming depreciation and interest charges
  • Flexible repayment period ranging from one to five years
  • Automatic ownership of vehicle after repayment of the loan

Cons

  • You are not the owner of the vehicle
  • Expensive when compared to ordinary car loans

Rate of interest

Different lenders offer a different rate of interest and this impact the loan amount. It may vary between 5.30% to 8% p.a.

Where to look for Commercial Hire Purchase

Some of the Australian finance institutions that offer CHP loans are Bank Australia, Aussie, AutoCarLoans, and NAB.

If you are seeking alternative options, check out our information on car loan options for business, truck and trailer finance options.

6. Merchant Cash Advance

Merchant cash advance (MCA) is a process where a lender purchases future transactions of a business and lends you a percentage of your sales. In most cases, an average of three months is calculated and the lender offers you one month’s average amount as loan. Technically, this is not a type of loan but it is gaining popularity as one of the quickest small business loans available.

Who can benefit from MCA?

This type of small business loans is suitable for merchants that accept credit or debit cards as payment. It is a great fit for online and offline retailers. It can be used as a quick short-term financing option to take advantage of a business opportunity.

Pros

  • Easy and hassle-free application process
  • Quick disbursement, usually within days
  • Flexible repayment schedule linked to cash flow

Cons

  • Only for merchants that deal with credit and debit cards for transactions
  • Very high rate of interest
  • No government regulation or fixed terms for lenders

Rate of interest

The rate of interest for merchant cash advance is usually 60% to 200% higher than ordinary business loans. It is usually more than 20% p.a.

Where to look for Merchant Cash Advance

Some of the Australian financial institutions that offer Merchant Cash Advance are GetCapital, Spotcap, NAB, Banjo, MaxFunding, and MiFinance.

If you are looking for alternative small business loans, check out unsecured business loan, business credit card, or line of credit options.

7. Trade Finance

Trade finance is a type of small business loans that provide firms the access to capital required to grow to their full potential. Trade finance is not just limited to financing, and the lending company offers transactional services, financial advice, financing solutions, risk management services, and technology to manage finance.

Who can benefit from Trade Finance?

Trade finance is offered by the credit union or bank for people and businesses that engage in domestic and international trading. As the domestic and international trading platform is ever changing with fluctuating exchange rates and volatile market conditions, trade finance offers a reliable cash flow for businesses to use the funds for trading.

Pros

  • Protects your business from fluctuations in foreign exchange rates
  • Wide range of options available for various business needs
  • Expert advice and suggestions offered by professionals

Cons

  • They usually involve high cost
  • Some banks only fund approved clients

Rate of interest

The rate of interest is usually calculated on a daily basis and it varies widely from one lender to another.

Where to look for Trade Finance

Some of the Australian financial institutions that offer trade finance are Capify, Banjo, MiFinance, SpotCap, and Waddle.

8. Unsecured Business Loan

This is a type of small business loans that you get without guaranteeing it with an asset as a security to take that loan. The amount of loan you can take entirely depends on the lender and your business’ average monthly sales. The amount may range from $1,000 to $100,000 and you may have it in your bank in one business day.

Who can benefit from Unsecured Business Loan

This finance option is most suitable for businesses that are dependent on cash flow and fluctuations have a significant impact on their ability to run smoothly. Quick short-term small business loans may be required for purchasing stock or covering orders in a business.

Pros

  • Quick and online application process
  • No guarantee or security required
  • Easy finance options for small and new businesses

Cons

  • Higher interest rates
  • Obscure terms and conditions
  • You may need to provide a personal guarantee in some cases
  • Rate of interest

The rate of interest is outrageously high in most cases and there may be hidden fees and costs involved, so you need to be careful.

Where to look for Unsecured Business Loan

Some of the Australian financial institutions that offer unsecured small business loans are NAB, Spotcap, Max Funding, OnDeck, and Prospa.

If you are looking for alternative small business loans, check out the information on business overdraft, business credit card and line of credit.

9. Invoice Finance

This is a type of short-term small business loans where firms can sell their invoices to the lending company and the lender provides 80% of the invoiced amount. This involves no security assets or interest rate, just a steady flow of revenue backed by invoices from clients. It becomes the responsibility of the lender to collect payments for the invoices.

Who can benefit from Invoice Finance

Businesses that need a steady flow of cash to pay staff and other subcontractors can benefit from this type of small business loans. You no more have to wait for weeks or months to get your invoices cashed. It is also useful when you need to purchase new machinery, discounted stock or pay off debts on time.

Pros

  • Quick funds – no need to wait for payments
  • Useful to cover short-term expenses
  • Eliminates the risk of late payment or non-payment of invoices

Cons

  • You receive less than the actual value of an invoice
  • Most lenders offer invoice loan only to established businesses
  • More expensive method than loan finance

Rate of interest

There are no interest rates charged on the borrowed amount, however, most lending companies will charge an advance fee of 2-5% of the total invoices.

Where to look for Invoice Finance

Some of the Australian financial institutions that offer invoice financing are Capify, Max Funding, Moula, OnDeck, Spotcap, and Prospa.

If you are looking for alternative small business loans, check out the information on business credit card and business overdraft.

10. Hire Purchase

This is a medium-term loan available to small businesses to help them purchase an asset. In this case, the asset remains the property of the lender who hires it to the business until the loan amount is fully repaid.

Who can benefit from Hire Purchase

Businesses that need to acquire new plants or buy the latest machinery/ equipment to grow and expand can take hire purchase loans. The flexible repayment schedule enables you to pay in monthly installments, without impacting the cash flow.

Pros

  • Asset becomes your at the end of the contract
  • Flexible monthly installments
  • Claim tax benefits

Cons

  • You need to pay an initial deposit amount
  • Asset is owned by the lender
  • A high rate of interest

Rate of interest

The interest rates for hire purchase finance are usually high and they may range between 4.6% and 15%. The loan duration is usually 1 to 7 years.

Where to look for Hire Purchase loan

Some of the finance institutions that offer hire purchase small business loans are Commonwealth Bank, NAB, Linx Australia Group, Savvy and Aussie Car Loans.

11. Commercial Bill Of Exchange

This type of small business loans is usually offered over a wide range of terms to help businesses with seasonal shortfall of funds in working capital. Businesses can take anywhere between $5 – $500k and the amount is usually disbursed within 7 business days.

Who can benefit from Commercial Bill Of Exchange

Any business that needs an extra backup for working capital during seasonal fluctuations may benefit from Commercial Bill Of Exchange to pay staff or support marketing activities.

Pros

  • Loan can be rolled-over on maturity date
  • Interest is payable on maturity
  • Revolving line of credit

Cons

  • Variable rate of interest
  • Interest is paid in advance
  • High minimum borrowing amount

Rate of interest

The lender usually charges 1.7% – 1.75% interest over the loan amount and that percentage is usually taken in advance.

Where to look for Commercial Bill Of Exchange

Some of the financial institutions that offer Commercial Bill Of Exchange are ANZ and My Biz Finance. If you are looking for small business loans options, check out invoice finance and line of credit.

12. Car Loan Options For Business

If you need a car for business, there are a wide range of finance options available. A specialized car loan for commercial use enables you to enjoy tax benefits and lease options that are not available with personal car loans.

Who can benefit from Car Loan Options for business

Whether you are a part of a company or sole trader, if your business extensively uses a car for marketing, promotional campaigns or PRs, you may benefit from this type of loan.

Pros

  • Several options to suit your budget
  • Tax benefits for business
  • Flexible repayment schedule

Cons

  • You don’t get ownership until the loan amount is paid
  • You may need an agent to negotiate tax issues

Rate of interest

The interest rates vary widely from company to company so it pays to compare quotes and choose a lender that offers car loans at a low-interest rate.

Where to look for Car Loan Options for business

Some of the Australian financing institutions that offer car loan for business are NAB, Moula, Capify, Max Funding, Get Capital, OnDeck, and Prospa. To find alternative small business loans options, check out the information on commercial hire purchase.

13. Truck And Trailer Finance Options

If you need to buy a truck or trailer for your business, you can opt for a wide range of truck and trailer finance options. This type of finance allows you to select the term of loan, the amount of deposit you want to make, and the rate of interest.

Who can benefit from Truck And Trailer Finance Options

Small businesses that need to purchase a truck or trailer to transport goods within the state or inter-state can benefit from this type of small business loans. It gives you the advantage to buy a commercial vehicle without impacting your working capital.

Pros

  • Easy repayment schedule with monthly installments
  • No dip in working capital
  • On-road, insurance, warranty and roadside assistance are included
  • You can claim tax benefits

Cons

  • Lender has the ownership until the loan is repaid
  • Variable rate of interest

Rate of interest

The interest rates vary widely from company to company so make sure you compare quotes and then apply. It usually varies between 3.9% and 7.81%.

Where to look for Truck And Trailer Finance Options

Some of the Australian finance institutions that offer truck and trailer finance options are ANZ, Savvy, Westpac, Suncorp, and Commonwealth Bank.

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