Small business loans

“Small business loan” covers a lot of ground. A florist borrowing $8,000 for a cool room and a logistics firm borrowing $400,000 for trucks are both small businesses taking small business loans. What they need, and what a lender asks of them, is very different.

The fastest way through the choice is to start with two questions: what is the money for, and what paperwork do you have?

The main types

Type	Good for	Usually needs
Unsecured business loan	Stock, fit-out, marketing, cash flow	Bank statements, 6+ months trading
Business line of credit	Uneven cash flow, slow payers	Bank statements, steady deposits
Second mortgage	Larger amounts, newer businesses	Property with equity
First mortgage	The largest amounts, longest terms	Unencumbered or refinanced property
Asset and vehicle finance	Utes, trucks, machinery	The asset as security

Start with what it’s for

Matching the loan to its purpose avoids the most common and expensive mistake in small business borrowing: funding a long-term asset with a short-term loan, or the other way around.

• Something you’ll use for years, like a vehicle, machine or fit-out, suits a longer term. Spreading repayments over its useful life keeps cash flow comfortable.
• Something that turns over quickly, like stock for a busy season, suits a short loan or a line of credit you can clear when the stock sells.
• A gap between paying and being paid suits a line of credit, because you only pay for what you draw.
• A one-off cost, like a tax bill or emergency repair, suits a short unsecured loan you can repay over months.

Then look at your paperwork

Your paperwork decides which lenders will consider you:

1. Full financials, lodged and current? You have the widest choice, including banks.
2. Bank statements but returns behind? Low doc lenders are your main market.
3. Property but little paperwork? No doc lending is built for you.

The paperwork matcher works through this in a minute.

How lenders decide

Whatever the type, a lender is working out whether the business can comfortably afford the repayment. They look at turnover, existing debts, how the account behaves, tax position, trading history and, for secured loans, the security. They also consider the reason for the loan. A clear purpose with an obvious source of repayment is easier to approve than a vague request for working capital.

An illustrative example

An Adelaide florist with two staff and four years of trading wants $12,000 for a new cool room. Her returns are lodged but the latest shows a modest profit because she paid off older debts. Her account shows strong daily takings, especially around Mother’s Day and Valentine’s Day. A small unsecured loan over two years, assessed on twelve months of statements, fits better than drawing on a credit card. Illustrative only.

Your protections

Business loans aren’t regulated in the same way as consumer loans, but small businesses aren’t without protection. Standard-form small business contracts are covered by unfair contract terms laws, and if something goes wrong you can complain to the lender and then to the Australian Financial Complaints Authority. Read the contract, ask about every fee and make sure you understand what happens if you repay early or miss a payment.

When a bank is the right answer

Banks are often the cheapest source of small business lending, but they’re also the most demanding about paperwork, security and trading history. If your returns are lodged, you have property and you’re not in a hurry, it’s worth seeing what your own bank offers. If any of those three isn’t true, specialist lenders usually move faster and accept more flexible evidence. Neither is the better choice in general. The right one is the lender whose rules match the business you actually run today.

It’s also worth knowing that many small businesses end up with a mix: a bank overdraft for everyday cash flow and a specialist loan for a specific purchase. That’s normal, as long as the total repayments sit comfortably inside what the business earns in a quiet month, not just a good one.

Comparing offers properly

When offers arrive, compare more than the headline repayment. Look at the total amount you’ll repay over the term, every fee including establishment and early exit costs, whether repayments are daily, weekly or monthly, and what security or guarantees you’re giving. A loan with a slightly larger repayment can be cheaper overall if the term is shorter and the fees lower.

Ask once, get a straight answer

Tell us what you need the funds for, how long you’ve traded and what paperwork you have. There’s no credit check to make an enquiry, your details aren’t blasted to a list of lenders, and one real person reviews it and calls you with options that actually fit. Answer accurately and the first match is usually the right one. Start your enquiry.