Easy guide to help you understand what are unsecured business loans in Australia, its types, benefits, interest rates and how to choose the right business loan.

1. Guide to Understanding Small Business Loans
Australia's thriving entrepreneurial landscape demands accessible financing
solutions to fuel business growth and innovation. Small business loans play a
pivotal role in empowering local ventures, offering capital infusion to fund
expansions, equipment purchases, and business optimisation. The most
common reason for SMEs in Australia to look for small business loans is to buy
equipment. Cash flow management, business expansions, inventory purchases,
and invoice payments are other critical reasons why they need the funds. Loans
for small businesses can help entrepreneurs manage exigencies and seize
opportunities in the market. Let’s discuss everything you need to know about
small business loans in Australia!
Purpose of additional finance SMEs, % Aug 2021 & 2022

2. What Are Small Business Loans?
A small business loan is a financing option that allows business owners to get a
lump sum amount from lenders to manage various business expenses. They are
required to repay the loan at a fixed interest rate over a specified period. There
are many types of small business loan products that suit a variety of enterprises.
From start-up business loans to bad credit small business loans, there are
numerous options to explore. Let’s break down the typical terms of small
business finance products available in the market:
● Loan Amount: Small businesses can get loans in the range of $5000 to $1
million, depending on a multitude of factors. The average loan amount for
small businesses in Australia is on the rise, growing by 15% between 2021
and 2022. Fuelled by post-pandemic recovery, many lenders are now
lending more money to small businesses than ever before.
● Loan Term: In most cases, lenders provide small business loans for three
months to three years.
● Interest Rate: Small business loan rates Lenders determine the interest
rate based on factors like the firm’s financial strength, credit history,
availability of collateral, industry prospects and more. A small business
loan calculator can help you estimate your potential repayments based
on the indicative interest rates typically charged by lenders.
● Repayment Frequency: Small businesses can make weekly, fortnightly, or
monthly repayments according to their loan agreement with the lender.
This flexibility makes it convenient for small-scale businesses to pay back
these loans.
What Can You Do with a Small Business Loan?
A firm can use its small business loan to take care of various business expenses.
Lenders usually do not place restrictions on how you can utilise the loan amount,
provided it goes towards a legitimate business expenditure. Here are some of
the ways of using a small business loan to maximise your firm's potential for
success.

3. (Source: https://www.nbcbanking.com/business-banking/business-lending-
guide/how-business-loans-work/)
● Working Capital Needs: Small loans for businesses can help these firms
navigate their day-to-day expenses. Seasonal ventures with cash flow
fluctuations often rely on small business loans to manage expenditures.
● Equipment Purchase: Many businesses rely on key pieces of equipment
to provide their services and drive value for customers. They may need to
purchase new equipment or machinery to scale their operations or
replace an old asset. In such situations, they can borrow money from
lenders to fund this essential business expense.
● Real Estate Investments: If you run a small business, you may want to
purchase or lease new premises for your firm. You may want to expand
and renovate your current premises or open new branches to grow your
business. A small business loan can come in handy for all these purposes
and help you take your venture to new heights.
● Buying Inventory: Lack of inventory can lead to the loss of sales and
competitive advantage in the market. Hence, it is essential to maintain
adequate inventory stocks to meet your demand forecasts. Many firms
take out small business loans during festive seasons or other high-demand
periods to buy more inventory to cater to the demand.
● Start-up Costs: Often, an entrepreneur may have an excellent business
idea, but they may lack the funds to execute their plans. In such situations,
small business loans can come to their rescue. They can borrow money to
initiate their operations and lay the foundations for growth.
Small Business Loans: Options to Explore

4. If you want to explore loans for your small business, there are numerous options
to explore. Let’s discuss the various types of small business loans available to
firms:
● Unsecured Small Business Loans: Small businesses may lack the assets or
time required to take out secured loans. In such situations, they can
browse unsecured business loans to meet their needs. Lenders provide
unsecured loans without any security or collateral. Since the risk for the
lender is high, they tend to charge a slightly higher rate of interest to
compensate for the same. Unsecured loans are a hassle-free source of
funding because it takes very little time to process and approve these
loans. A firm needs to submit only their bank statements for loans up to
$250K. They can get a quick business loan within 24 hours for a term of
3-36 months if they opt for unsecured credit.
● Secured Small Business Loans: A secured business loan is a lump sum
amount lent against some security or collateral. The borrower must offer
a real estate property to the lender to secure this type of loan. Secured
small business loans are excellent for start-ups that have no business
activity or financial strength to show. They can pledge a residential or
commercial property as collateral to cover the lender’s risk and get
favourable terms on the loan. They can get small business start-up loans
up to 80% of the value of their pledged asset. These loans are available
for 3-18 months, allowing sufficient time for new firms to set up their
operations.
● Small Business Line of Credit: A business overdraft is a flexible source of
finance for small business owners. In this case, the lender approves a
credit limit, and the firm can withdraw money according to their unique
business requirements. They have to pay interest on the amount they
withdraw and not the entire credit limit. Business lines of credit in
Australia help firms navigate their working capital needs by providing an
interest-free buffer.
● Bad Credit Loans: Lenders evaluate the credit score of applicants in detail
before approving their loans. However, this does not mean that it is
impossible to get a small business loan because of the applicant’s poor
personal or business credit history. Bad credit small business loans are
available to Australian firms with some stringent terms and conditions.
These loans often carry higher rates of interest and have more rigorous
lending criteria. Typically, bad credit business loans are available for a
short-term period between three to twelve months.

5. ● Short-term Loans: Short-term business loans are perfect for bridging
capital needs. Firms can get short-term credit to meet urgent working
capital requirements and tackle cash flow fluctuations. These loans
require minimal documentation and are usually quick to be processed.
● Small Business Equipment Finance: 27% of SMEs borrow money to buy
new equipment to streamline their operations. Hence, lenders frequently
offer favourable terms to secure loans for this purpose. Firms can secure
equipment loans against the value of the newly acquired asset and pay
lower interest rates compared to unsecured loans. These loans can
usually be taken for up to seven years, ensuring flexibility and
convenience for the borrowers.
Eligibility Criteria to Get Small Business Loans in Australia
Borrowers have to meet the required criteria to be eligible for small business
loans. They are as follows:
● Registration: The borrowing firm must have a valid and active Australian
Business Number (ABN) to apply for business financing.
● Trading History: Many lenders prefer to advance small loans for business
purposes to firms that have been in operation for six months or more.
However, start-up businesses can also secure loans by pledging collateral
to the lenders.
● Monthly Turnover: Small businesses need a monthly turnover of $5K or
more to be eligible for most business loan products.
Advantages and Disadvantages of Taking a Small Business Loan

6. Small business loans can be a game-changer for business owners who want to
grow their ventures or navigate challenging times. However, it is crucial to weigh
the pros and cons of these loans before deciding to borrow. Here are the
advantages you can expect with small business loans:

7. ● Access to Capital: Small business loans provide a vital infusion of capital,
enabling entrepreneurs to fund startup costs, expand operations, invest
in equipment, or seize growth opportunities.
● Smooth Cash Flow: Small business loans can help address cash flow gaps,
ensuring the continuity of operations and providing stability during lean
periods or unexpected expenses.
● Flexibility in Use: Business loans offer flexibility in how the funds are
utilised. Entrepreneurs have the freedom to allocate them as needed to
drive their business forward.
● Building Credit: Responsible borrowing and timely repayments can help
establish and improve your business credit profile. Increasing your credit
score can potentially open doors to more favourable terms in the future.
● Quick and Hassle-Free Approvals: In most cases, lenders process small
business loans very quickly. You can get unsecured loans in just 24-72
hours, while secured loans take about 3-7 days for unconditional approval
and settlement. The experience of applying for small business loans is
quite hassle-free, as businesses have to submit just a few documents to
facilitate the process. Most small business loans are low-doc, requiring
the applicants to submit their last six months’ bank statements and
identification proofs to secure approval.
● Variety of Options: Small businesses can explore various loan products to
find the options that suit them the best. They can compare small business
loan rates and the terms offered by lenders to fit their unique business
model. There are numerous small business loans available in the market,
allowing business owners to compare the loans and opt for flexible
sources of funding.
Now that you know the advantages of taking a small business loan, let’s discuss
the potential disadvantages to help you make an informed decision:
● Small Amounts: Lenders often consider small businesses riskier than
established firms because of their limitations in scale. As a result, they
tend to approve lower amounts for small business loans to minimise their
risks.
● Higher Rates of Interest: Small-scale businesses may have to pay a higher
interest rate than larger firms with a demonstrated history of success.
Lenders tend to charge higher interest rates to cover their risks in case the
borrowers go bankrupt and fail to repay their loans. The higher interest
rate can lead to high repayments, affecting the firm’s cash flow situation.

8. ● No Guarantee of Business Growth: While small business loans are
valuable tools for growing local ventures, they do not guarantee long-
term business expansions. Success and growth depend on execution and
not just the infusion of funds. A small business loan may not solve long-
term business challenges. Hence, it is crucial to carefully weigh your
requirements and business plans before taking out a loan.
You should carefully understand these advantages and disadvantages before
applying for a loan. A detailed analysis will help you make an informed decision
and avoid pitfalls in the future.
How to Apply for a Small Business Loan?
First-time borrowers may be daunted by the idea of applying for a small business
loan. SMEs in Australia often struggle to figure out how to get a bank loan for
small businesses, with many of them experiencing difficulties in finding a willing
lender or an affordable loan. In such cases, firms can work with experienced
finance brokers to connect with alternative lenders who offer flexible loan terms
for small-scale ventures.
(Source: https://www.smefinanceforum.org/post/survey-finds-funding-gap-is-
stifling-small-business-growth-in-australia)
If you are a small business owner looking for an affordable loan, following a
structured approach can help you navigate the application process. Here are the
steps you can take to simplify your loan application journey:
#1 Determine Your Funding Needs
Before applying for a small business loan, evaluate your funding requirements.
Clearly define how much capital you need, what it will be used for, and the

9. repayment terms you can comfortably manage. You can use a small business
loan calculator to ascertain the potential repayments and assess if the amount
fits your business budget.
#2 Research Loan Options and Eligibility Criteria
Thoroughly research different loan options and lenders to find the most suitable
fit for your business. Understand the eligibility criteria for getting a small
business loan to suit your requirements. At this stage, you can contact a financial
broker to discuss your needs and explore the loan products that may be right for
you. Compare the business loans and decide where you want to apply.
#3 Prepare Your Documents
Applicants must submit the required documents to facilitate the loan approval
process. If you want a loan up to $250K, a low-doc application will suffice. You
need the following documents for low-doc loan approval:
● A valid identification document.
● Bank statements from the past six months.
The lenders may require some more documents based on the nature of the loan
you want. For example, if there is no ATO payments cited in the bank statement,
the lender may ask for ATO statement. Your finance broker can guide you to
prepare the necessary documents for a hassle-free application process.
If you want to apply for an unsecured loan over $250K, you have to submit the
following documents in addition to the bank statements and identification
proofs:
● Financial statements.
● ATO statements.
You can prepare your documents in advance before filling up your loan
application.
#4 Submit the Application
Once you have gathered the required documents, submit your loan application.
Ensure that all information provided is accurate and complete. Double-check the
application for any mistakes or omissions that could potentially delay the
approval process. You can submit your application online with all the required
details. Your financial broker can go through your application and forward it to
the most suitable lender to fast-track the process.
#5 Review and Accept the Loan Offer

10. After submitting your application, the lender will evaluate your eligibility and
provide their loan offer. Carefully review the terms, including interest rates,
repayment duration, and associated fees. Once you are satisfied, you can accept
it by following the lender's instructions. If you have any queries, you can consult
your financial broker for clarification. Once all requirements are met, the lender
will finalise the loan and transfer the funds to your designated account. In some
cases, you can receive the approval and the loan amount within just twenty-four
hours.
How do Lenders Evaluate Applications for Small Business Loans?
Lenders evaluate the following factors to determine the status of a loan
application:
● Industry and Market Factors: Lenders consider the industry in which the
business operates, examining its growth potential, market conditions, and
competitive landscape. They evaluate the risk associated with your
industry's stability and your firm's position within the industry.
● Financial Position: Lenders assess the firm's financial strength to
determine whether they can service the debt. Typically, a high monthly
turnover is a positive indicator for lenders, leading them to approve
higher amounts.
● Security: Lenders may require collateral to secure the loan. They assess
the value and marketability of the offered collateral, such as real estate,
inventory, or equipment, to mitigate the risk in case of default. If you take
an unsecured small business loan, the lenders often prioritise applications
where the firm or its directors are asset-backed.
● Credit Score: Lenders carefully assess your creditworthiness by reviewing
your personal and business credit history. They consider factors such as
your credit score, payment history, outstanding debts, and any past
bankruptcies or defaults. The credit score is especially important for a
new business, as it can minimise the lender’s risk and make them more
likely to issue an approval.
● Trading History: Businesses operating for more than one year often get
precedence when lenders evaluate loan applications. However, newer
firms can also get start-up business loans from several alternative lenders.
Lenders analyse these factors to determine the loan amount, interest rate, and
other terms they are willing to approve. Evaluating these aspects can give you
more clarity about your loan prospects.

11. Tips to Simplify Your Small Business Loan Application Process
Applying for a business loan can be a complex process, but with the right
approach, you can simplify it and increase your chances of success. By taking
steps to streamline your loan application, you can save time, reduce stress, and
present an excellent application to lenders. Here are some tips to simplify your
application:
● Strengthen Your Credit Profile: You should prioritise improving your
credit profile by paying bills on time, reducing outstanding debts, and
correcting any errors on your credit report. A strong credit profile
enhances your credibility and increases your chances of loan approval.
● Consult a Finance Broker: Once you identify your funding requirements,
you can start exploring suitable options. Many SMEs in Australia struggle
to find bank loans to fund their business operations. If you face this issue
or do not know how to get a bank loan for your small business, it is better
to partner with a finance broker. These brokers can connect you to a
network of alternative lenders who provide tailored financing solutions
for your firm. Moreover, their expertise can help you navigate the
complexities and ensure your application is thorough and compelling.
They can guide you about various aspects of the process and provide you
with relevant information. From average loan amounts for small
businesses to typical interest rates, they have in-depth knowledge about
all facets of small business loans to help you.
● Explore Government Schemes: You can check government small business
loans to find options that may fit your needs. The Australian government
sometimes initiates loan assistance programmes to fuel the growth of
SMEs. A knowledgeable finance broker can provide you with information
about government small business loan schemes, enabling you to make the
best decision for your firm.
● Prepare a Detailed Business Plan: Although lenders do not mandate the
submission of a business plan, it is better to be prepared to demonstrate
your growth trajectory. Craft a detailed and professional business plan
that outlines your business objectives, strategies, financial projections,
and market analysis. A well-prepared plan demonstrates your
preparedness and increases the lender’s confidence.
If you want guidance and support to apply for various small business loans, you
should contact Broc Finance today! Its team of financial brokers can help you

12. apply for working capital loans and other credit options to help you achieve
your business goals.
Source: https://www.brocfinance.com.au/blog/guide-to-understanding-small-
business-loans/