Australian small businesses are the backbone of the economy and labour force so having the means to seize opportunities and solve problems can be a game changer. You might have heard that cash is king but one of the biggest difficulties small businesses face is the time and cost requirements related to growing their business. This is where a small business loan from Rapid Loans comes in!
There’s often stigma attached to loans that if you’re getting yourself into debt then your business is taking a step backwards but you can’t just dream about success, you have to work for it. It’s common for Australian businesses of all sizes to take out business loans as they often require more funding than they might have in their business bank account. This business loan guide is for you if you’re asking yourself whether you should take a loan to grow your small business or if it’s the right time to get a business loan.
What is a small business loan?
A business loan is a type of loan that’s specifically used to help small to medium businesses grow, manage cashflow, make big purchases or simply meet everyday running expenses. We understand that every big business starts small and recognise the unique financial circumstances that you are dealing with because we’ve been in the same shoes! That’s why we offer flexibility when it comes to loan amounts, terms, interest rates and fees.
At Rapid Loans, we believe that if opportunity doesn’t knock then it’s time to build a door. Some of the businesses we partner with use loans to invest in their Australian businesses by:
- Paying staff wages or hiring new employees.
- Purchasing stock or buying new equipment.
- Paying invoices.
- Marketing and advertising.
- Moving premises, renovating, expanding or purchasing real estate.
- Boosting day-to-day cashflow.
- Funding growth opportunities.
To add to this list, the Australian Bureau Of Statistics found out that nearly half (46%) of businesses have experienced increases in their operating expenses since June 2022. Businesses also commented that general cost increases as well as increases in the cost of products, materials, fuel and wages are reasons in their operating expenses. This is in conjunction with small businesses believing their biggest challenges for 2023 are fast-rising inflation and interest rates, reduced consumer spending and having to pay higher wages.
Which loan is best for business?
To decide which loan is best for your business, you need to understand what makes up a loan and your financial position. You can start by preparing a cash flow statement to give you a snapshot of your circumstances by looking at your current income, net profit, expenses and future projections. Get started by finding out how to analyse your business finances with help from business.gov.au. Ultimately, this will help you know your limits and your ability repay any money you borrow so you can decide whether you need money upfront or on a needs-basis and what assets you have to offer as collateral.
Speaking of collateral, you can choose for your small business loan to either be secured or unsecured.
- Secured – A secured business loan is one that is, you guessed it, is secured against an asset such as residential or commercial property, vehicles or even against the business itself. Secured business loans tend to come with more competitive rates and fees than unsecured business loans as the security covers the business loan amount if you’re unable to pay it back. It’s important to remember that you may need value assessments and additional proof or documentation of assets.
- Unsecured – Unlike a secured loan, an unsecured loan doesn’t require any security against them so the lender will look at the strength and cash flow of your business as security. That means the lender is taking on a greater risk so terms, rates and conditions may result in higher borrowing costs. With an unsecured loan, you might not be able to take out quite as large as a secured one.
While interest rates have been a hot topic at the moment, when it comes to the terms of your business loan it can either have variable or fixed interest rates. When it comes to business loans, lenders will often not disclose their rates until after your application as the rates they offer are personalised and based on factors such as your cashflow, credit history, financial situation and future plans.
- Fixed – Having a fixed interest rates mean your rate stays the same over the life of the loan. Having consistency in your repayments allows you to have more certainty throughout your loan term and make it easier to budget, you could even set up automatic repayments so it’s one less thing to worry about! The only downside to fixed interest rates is that if the rate goes down, you could miss out on a lower interest rate.
- Variable – As the name suggests, the interest rate may go up and down during your loan term which means you won’t have as much certainty and may end up paying more interest. If you have a short term business loan and don’t think the interest rate will rise, the variable interest rate might suit you. On the other hand, if you have a long term loan and expect the interest rate will increase, it could be better to lock in a fixed interest rate.
Depending on your cashflow, there are different financing types that might suit your business best. These include the following:
- Lump Sum Upfront – This is best for businesses looking at buying stock or new equipment and know exactly how much they need to borrow to make a large one-off business purchase. This is like a mortgage except there are no redraw options for fixed loans and it can’t be used as a transaction option.
- Line Of Credit – Also known as a business overdraft, this is best if you need ongoing access to extra finance but your cashflow is unpredictable or seasonal. It works by the lender approving your business for funds up to a credit limit, and you are able to withdraw any portion to use whenever you need. You only pay interest on what you need although you’re likely to incur fees even if you’re not using the cash so your interest rate is usually higher and you don’t have a defined payment schedule.
- Finance Lease – This allows you to use an asset such as a car, machinery or other equipment for an agreed period of time. The lender buys the asset at your request and it’s then rented to you over a fixed period of time. Once the lease period ends, you return the asset and pay the residual value or ballon payment.
- Commercial Hire Purchase – Similar to a finance lease, this allows your business to buy assets over an agreed period of time with the lender purchasing the asset and allowing you to use it in return for regular payments. When all repayments have been made, your business owns the asset.
- Invoice Finance – Also known as accounts receivable finance, this a quick way to access cash to pay outstanding invoices. Rapid Loans can provide up to 85% of the invoice value if you need cash ahead of normal payment dates and the best part is that no interest charges are payable as all you pay is a fixed fee per invoice.
Rapid Loans is the smarter choice when it comes to straightforward business loans with a quick application process, quick assessment and a quick decision. We even offer some of the best online options for businesses seeking fast financial solutions for everyday needs. Here are some of the ways Rapid Loans can tailor financing solutions for your business:
- Invoicing credit terms to help support cash flow with no security needed as the invoice acts as security.
- If your business is a retail operation and your customers pay regularly via Eftpos or credit card, our RapidDraw business advance product can secure you additional funds now for business investment or expenses.
- If you need a large order upfront, Rapid Loans can provide a small business loan and the funds to settle with your supplier. We can also arrange a letter of credit to secure the order.
What Is A Letter Of Credit?
A letter of credit is a document issued by Rapid Loans, or your choice of other lender, on your behalf to guarantee payment when all the conditions stated in the letter have been met, essentially taking responsibility that the seller will be paid.
The letter is binding so the lender is committed to making the payment on an agreed date once the documents are received. There are a number of lines of credit including:
- Commercial letter of credit
- Revolving letter of credit
- Travelers letter of credit
- Confirmed letter of credit
A letters of credit has become an important part of international trade when dealing with distance and differing laws. An example of a letter of credit is paying suppliers for their goods once the supplier has sent the lender shipping documents, proving that they’ve shipped the goods. The shipping documents could be commercial invoices showing the goods supplied and the price or packing lists showing details of how the goods are packed.
What Is Equity Finance?
Compared to a small business loan, equity finance is where you don’t repay any money but you give up part ownership of your business. Funding may come from private and public (share market) investors, family and friends, angel investors or crowd-sourced funding. This type of financing is often considered at later stages after a business has been well established and achieved significant growth, it might even be something you look at once you’ve established yourself with a small business loan and have a proven track record!
Should I Get A Business Loan From A Bank?
Why You Should Choose A Bank:
Banks were once the only place to open accounts, get loans and exchange currencies but nowadays there are more small business finance options available than standard banks tend to offer.
When it comes to getting a small business loan from a bank, the process tends to be slow and cumbersome with physical paperwork often requiring you to visit the bank in-person. You could then be left waiting as the decision takes anywhere from a few weeks to a few months and you’re unlikely to receive financing if you have a bad credit score.
Why You Should Choose An Online Lender:
Fintech lending is changing the way consumers and businesses borrow money, known now as the use of innovative technology to increase the speed and equality of credit and loans. It reduces the time and physical barriers to traditional lending by enabling you to secure funding in minutes without ever stepping in a physical bank.
With online business lenders it’s a shorter and simpler application process that’s done strictly online, using digital tools to gather documents and digital signatures. If approved, you’re likely to have access to funds with 24 hours so it’s the best option if you require access to cash urgently and aren’t able to receive a business loan from the bank.
Unlike some online lenders who choose to keep their customers at arms length with online chats, Rapid Loans has in-house loan consultants in Australia who offer support by phone and email during business hours. You will also have a dedicated business loan consultant who will tailor a loan to your needs!
How Do I Apply For A Small Business Loan?
No matter which type of lender you choose, they both provide the same general service, lending money to both individuals and businesses. Either way, you’ll need to prepare a basic business case which establishes how much you need to borrow, how much you can afford to repay over which period and what you’ll use the funds for. For example, if you need a piece of machinery for a manufacturing business, get quotes from companies that supply this machinery including delivery and installation.
If you choose a fintech lender, you’ll then need to complete an online application form with information about your business such as ABN, structure, location, sector, turnover and time in business. You may need to upload supporting documents such as:
- Main financial reports including financial forecasts, ratio calculations, bank statements, credit sales or merchant statements
- Personal identification
- Personal financial information
- Your business plan
Once you submit your application, one of Rapid Loans friendly loans consultants will contact you within a few business hours. If you make a full application in the morning and it’s approved, we aim to have the cash in your account the next business day.
You should also then receive a clear repayment schedule but it’s important to read any fine print and look out for the following fees:
- Application Fee – A fee you’ll be charged at the start of your loan which can either be a dollar figure or a percentage of the loan amount.
- Ongoing Fee – Also known as a service fee, these can be charged weekly, monthly or annually.
- Early Repayment Fee – As the name suggests, some lenders may penalise you for the privilege of paying off your loan early.
- Dishonor Fee – A dishonour fee may be charged if a due payment isn’t able to be processed due to a lack of funds in your account.
- Late Payment Fee – This is charged every time you miss a repayment.
If you’re after more information, you can read more on the Rapid Loan’s blog about how to get a loan without a bank.
How Much Can I Borrow For A Business Loan?
Every lender offers varying minimum and maximum loan amounts but when it comes to your borrowing power with Rapid Loans, we can offer loans of $10,000 up to $50,000!
Many small business loans are secured which means the amount of equity available in the property also help determine how much you can borrow. Your credit score may also impact your ability to borrow as the numerical indicator is a sign of your businesses financial health and the risk in lending to you as a business.
Whether your business is small and growing or well established, Rapid Loans can provide you with:
- Zero interest for a set period.
- Fixed fees.
- Flexible business loan terms.
- Option of secured or unsecured financing.
How Many Business Loans Can I Get In Australia?
This ultimately depends on your overall income although the general answer is two, this varies greatly from borrower to borrower based on your individual circumstances. Generally speaking, if you’re earning a lesser income and your lender believes you’re only capable of juggling your existing personal loan on top of your other day-to-day expenses, you won’t be approved for a second finance deal.
How Hard Is It To Get A Business Loan In Australia?
We know that by supporting your small business, we’re supporting a dream which is why Rapid Loans has narrowed it’ qualifying criteria for business loan applications to just two key questions:
- Are you a start up or established enterprise? Rapid Loans requires your business to have been n operation for at least 6 months. Lenders will often require your business to have been in operation for a minimum amount of time before they’ll offer you a business loan because he longer a company has been in business, the less risky it is to lend to.
- Does your business have a monthly turnover of $10,000 or more? Lenders want to ensure that your business is generating enough income to cover your business loan repayments, which is why they may require a minimum annual turnover.
You may also need to demonstrate your businesses health to successfully secure financing which means providing financial data about your business. This might include things like business history and experience, income generated, capacity to repay a loan, assets of the business, security options if required, collateral or capital and loan purpose. Please note that when assessing an application, we only ask for the information we need to ensure a fast response to your application.
Lenders may look at both your personal and business credit history, so it’s a good idea to know where you stand before asking for a business loan as any late payments or defaults will make it difficult to get a business loan.
Outstanding tax with the Australian Taxation Office (ATO) could also impact your ability to take out a business loan so it’s helpful to be upfront and discuss your debt with potential lenders to find out if this will prevent you from getting a business loan. In 2018, change in legislation meant unpaid business tax is now reported to credit agencies that owe more than $100,000 and is more than 90 days overdue. This is nothing to fear and simply means there is greater transparency about the financial health of your business.
Please note that the list above is based on stringent requirements when seeking a traditional bank loan and different lenders may require some, but not all, of the above items.
Why Has My Business Loan Been Declined?
We understand that an entrepreneur without funding is like a musician without an instrument. It can be frustrating to find out that your business loan was denied but understanding why your business loan has been rejected can make it easier to strengthen your weaknesses and make improvements for future applications. Your application may have been declined because:
- Your revenue is inconsistent or there are cash flow limitations.
- You haven’t been in business long enough.
- Your industry is too high risk.
- You have poor credit history or are viewed as too risky to qualify due to existing debt.
- The secured loan collateral won’t cover the outstanding loan amount.
Being Australian owned and operated since 2003, Rapid Loans is dedicated to helping companies like yours access small business loans, effectively and efficiently. Don’t sit down and wait for the opportunities to come, it’s time to get up and make them happen! Start the online application process in just a few minutes from the comfort of your own home or business to get a rapid response to your online loan application today.