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Comparing Popular Types Of Small Business Loans

As a small business owner or possibly a conceiver so far, how do you know what kind of small business loans suit your needs best? Do you know multiple lending products exist today that are meant to assist small business?

Knowing these options deeply is the key to making the right choice according to the varying needs you will come across over the years. If you choose the wrong product at the wrong time, you might have to pay more than you could if you knew about more suitable options.

Below, we have profiled 10 of the most popular small business financing product types, so you get considerable information about them and make informed decisions about your alternative financing needs as a responsible business owner and manager.

Small Business Loans

Unsecured business loans are short-term financing products, often with the repayment period of 12 months. As the name suggests, unsecured business loans do not demand you to provide any security or collateral at the time of filing your application (or later).

This kind of financing is often repaid in weekly or even daily instalments and do not restrict you to spend the money for a certain type of business needs.

Amount
Amount
$5,000 to $400,000
Duration
Duration
Three months to a year
Interest Rate
Interest Rate
Above par
Processing Time
Processing Time
Same-day Transfer

Benefits

  • Fast application process with simple application forms
  • No security required for approvals
  • Available for smaller businesses unable to satisfy rigorous scrutiny of a bank

Drawbacks

  • High-risk product, which means it comes with a high interest rate
  • Higher than expected borrowing costs
  • High loaned amount may mean you must provide a guarantor who will be liable to repay on your behalf if you fail to

Applications

Not restricted. You can spend the loan amount to strengthen your working capital or invest as required in hiring new resources, purchasing inventory, or seeking new opportunities.

Apply for an unsecured business loan with us right now

Line Of Credit

A line of credit is an agreed upon sum of money that the lender allows you to access as and when you need to. It is often a short-term facility where you are not required to spend the money in a certain or to solve a certain problem. Moreover, the product comes with the added benefit that you only pay interest on the amount drawn out of your approved limit.

Amount
Amount
$5,000 to $250,000
Duration
Duration
Three months to a year
Interest Rate
Interest Rate
5% to 12.5%
Processing Time
Processing Time
24 to 48 hours

Benefits

  • Ideally flexible: You draw what you need
  • Pay interest on the drawn amount only
  • Convenient application processing faster than banks

Drawbacks

  • No certainty: the line may be cancelled on urgent basis with urgent requests for repayment
  • Variable terms and you might be expected to pay overdraft at regular intervals

Applications

Not restricted. You can spend the loan on any business need you may find most pressing.

Apply for a business line of credit with us right now

Invoice Finance

Often referred to as factoring, invoice financing is the practise of handing over certain receivable invoices to a lender who will take over the invoice payment from your customer and lend you between 75% and 80% of the invoice amount, depending on your agreement. You get the money immediately and the lender becomes responsible for the invoice.

Amount
Amount
$5,000 to $100,000
Duration
Duration
One to six months
Interest Rate
Interest Rate
3% to 5%
Processing Time
Processing Time
24 to 72 hours

Benefits

  • Immediate cash without having to wait for clearing the invoices
  • Risk of unpaid invoices goes down to zero (For invoices sold)
  • Immediate solution to urgent short-term financing needs

Drawbacks

  • Reduced value of invoices issues
  • Higher interest rates than other small business loans
  • Minimum turnover limit is sometimes required

Applications

Not restricted. You may spend the money on any business need you want to satisfy first.

Apply for business invoice finance with us right now

Merchant Cash Advance

As the name suggests, this service/product works as an advance payment and is available only to businesses that deal in debit and/or credit card sales. You ask your lender to loan you the money you need for an agreed upon duration, and the lender takes a certain amount – or percentage - out of your daily sales. You are not restricted to use this money for any particular need and can solve any immediate business problem with the loan.

Amount
Amount
$5,000 to $250,000
Duration
Duration
One month to a year
Interest Rate
Interest Rate
20%
Processing Time
Processing Time
24-48 hours

Benefits

  • Convenient application processing faster than banks
  • Immediate availability of cash that you can use to solve any problem you want
  • No pressure of repayment, as loan is repaid at agreed percentage of daily sales

Drawbacks

  • Available only to merchant-status businesses
  • Access to sales history is often requested
  • Extremely high interest rates due to little or no government regulations on this type of lending

Applications

No restrictions. You may spend the money on any urgent – or regular - business problem you deem important.

Apply for merchant cash advance with us right now

Equipment Finance

Equipment financing is a short- to medium-term option sought when you are in need of equipment or machinery for your business or a project. The lender buys the equipment for you but maintains ownership of the asset until the loan is fully repaid.

Amount
Amount
$5,000 to $2,000,000
Duration
Duration
One to five years
Interest Rate
Interest Rate
6% to 15%
Processing Time
Processing Time
One week to a fortnight

Benefits

  • Little to no effect on your working capital due to no requirement for up-front payment or deposits
  • Flexible loan durations with repayment based on your business cash flow
  • Higher chances of securing financing than cash-based loans

Drawbacks

  • Higher interests and costs than cash-based small business loans
  • No effect on equity, as the machinery is owned by the lender until repayment of the loan and interest
  • Works based on leases, which means high termination fee if you no longer require the machinery

Applications

Restricted to purchasing of equipment, machinery or plants for your business needs

Apply for equipment finance with us right now

Hire Purchase

Hire purchase financing works just like equipment financing, except with hire purchase loans you can buy any kinds of assets for your business. The lender actually buys the asset for you and owns it until you pay back the loaned amount with the interest.

Amount
Amount
$5,000 to $2,000,000
Duration
Duration
One to seven years
Interest Rate
Interest Rate
5% to 15%
Processing Time
Processing Time
One week to a fortnight

Benefits

  • Flexibility to set repayment terms based on expected life cycle of asset as well as your cash flow projections
  • New asset and equity included in business portfolio as soon as the loan is repaid
  • Possibility of securing GST credits

Drawbacks

  • Sizeable up-front payment required, which affects working capital
  • Higher interests and costs than cash-based small business loans
  • No effect on equity, as the machinery is owned by the lender until repayment of the loan and interest

Applications

Restricted to purchase of business assets, including offices, vehicles, furniture, etc.

Apply for a hire purchase loan with us right now

Commercial Bill Of Exchange

A commercial bill of exchange is a short-term financing option that is preferred in times when you need an immediate surge in your working capital. The bill can be signed on a wide enough range of terms and effectively takes care of any slumps in your ability to spend on your day-to-day business activities. It comes with a progression of maturity dates, any of which can be used by the borrower to complete the contract and pay interests accordingly.

Amount
Amount
$5,000 to $500,000
Duration
Duration
One month to two years
Interest Rate
Interest Rate
1.5% to 1.75%
Processing Time
Processing Time
4 days to a week

Benefits

  • Multiple maturity dates, allowing roll-over opportunities
  • Ability to transform it into other types of small business loans, such as a cyclic line of credit or a fixed-term loan
  • Progressive levels of interest due at each maturity date

Drawbacks

  • Interest is paid up-front for each maturity interval and is above par
  • Bills with variable rates quickly change to adapt to fluctuating interest rates
  • Only suitable for businesses with consistently high turnovers, as minimum borrowing amount is often half a million or more

Applications

No restrictions. While a bill of exchange is often signed when the borrower needs a boost in their working capital, the money can be spent on any other business need as well.

Apply for commercial bill of exchange financing with us right now

Traditional Business Loan

A short- to long-term small business loan rendered in a traditional way like a bank. It may take the shape of a mortgage in terms of how repayment is done and will probably require a security in the form of a personal asset. You can avail this financing option by applying to large banks in your city that are known to offer commercial loans.

Amount
Amount
$50,000 to $10,000,000
Duration
Duration
One to ten years
Interest Rate
Interest Rate
3% to 13%
Processing Time
Processing Time
A fortnight or longer

Benefits

  • Choice between variable and fixed interest is often offered by the lender
  • Similarly, choice between interest plus or interest-only may be offered
  • Flexibility to set repayment terms based on expected life cycle of asset as well as your cash flow projections

Drawbacks

  • Commercial assets bought with the loan may result in higher interest
  • These loans often only come with a minimum borrowing limit
  • Complex and long application processing times
  • May only be available to established businesses with consistent turnover

Applications

No restrictions but this type of small business loans is taken for major expansion in business or preliminary establishment of considerably large business operations.

Apply for a fixed-term business loan with us right now

Personal Loan

This is the most common type of loan instrument where money is borrowed to a person rather than their business. It comes with smaller loan amounts and short-term repayment periods with variable or fixed interest rates.

Amount
Amount
$5,000 to $40,000
Duration
Duration
One to three years
Interest Rate
Interest Rate
7.5% to 19%
Processing Time
Processing Time
A week

Benefits

  • More cost-effective than any other of financing included in this list
  • Possible early repayment without any significant penalty
  • Sufficiently fast processing

Drawbacks

  • Highly dependent on your personal credit history
  • Personal obligation of repayment (Not your business’ responsibility)
  • Often higher interest rate than other types of small business loans

Applications

No restrictions at all. You can purchase anything or spend the money to solve any problem. Due to easier access to this type of financing, many business owners use it as a small business loan.

Apply for a personal loan with us right now

Business Credit Card

A credit card issued in your business’ name and not yours. Offered by most banks of varying sizes, a business credit card is protected against personal usage of business owners.

Amount
Amount
$2,000 to $100,000
Duration
Duration
Cyclic and infinite
Interest Rate
Interest Rate
5.5% to 21%
Processing Time
Processing Time
24 hours to a week

Benefits

  • Extremely convenient purchasing
  • Immediate access to digital money for emergency cash flow issues
  • Possible weeks of interest-free repayment of money used

Drawbacks

  • Closely connected to personal finances in many cases
  • Above par interest rates that may go very high
  • May result in sizeable charges even it is not in use

Applications

Not restricted. Often used for purchasing perishable products and to boost cash flow.

Apply for a business credit card with us right now

Common Reasons For Seeking Small Business Loans

Acquire real estate property
Invest in marketing
Take over a competitor
Renovate property
Avail very favourable opportunity
Change working premises
Purchase stock and inventory
Strengthen working capital
Clear staff dues
Hire new resources
Purchase other types of assets
Pay tax

Three Key Questions To Ask Yourself While Assessing Financing Options

The answers to these key questions will have a deep impact on the successful completion of your loan contract. Our important tips below shed more light on this problem.

  • What is the likelihood of my securing this loan?
  • How soon can I get access to the funds I seek?
  • What are the exact fees and interest payment I will be paying? Are they suitable for my circumstances?

Pro Tips For Solving Key Financial Challenges For A Small Business

Financing
Know Your Needs To Choose The Right Financing Option

The better you understand your specific business need that you want to fulfil the easier it will be for you to choose the right type of small business loans. If you are trying to enforce your working capital, a short-term financing product can take care of it for you, but, if your objective is to buy a new power plant for your facility, for example, you should go for a long-term option.

Cash Flow
Ensure Positive Cash Flow

If you manage a small business, you must be aware that one of the biggest challenges you face is maintaining a positive cash flow profile. This is one of the reasons why small business loans are sought by many businesses. However, when borrowing, remember that any overdrafts on your accounts will result in higher return payments.

Good Risk
Prove To Be A Good Risk

For a lender, a key factor in determining whether they should support your business objectives or not is determining chances of your success against the risk involved. If you can demonstrate to them that you bring low risk – or risk that comes with high probability of success, they will be likely to agree on low interest rates for the loan. This will also result in other favourable repayment terms, including the loan duration and late payment penalties, etc.

Choosing The Right Lender

Borrowers are seeking alternative financing due to the unparalleled convenience, access to funds, and processing speed it offers. This growing demand has resulted in the emergence of numerous lenders providing online lending services, many of them offering focused lending services of their choice, such as only invoice financing or hire purchase lending.

As the borrower, you should study the various options before signing any agreements. Follow these three steps in the given order and you should be able to pick the ideal type small business loans for your business:

  • Study the products available and pick the one that suits your needs best
  • Research multiple providers of the type of business financing you have picked
  • Get expert help from a financial services firm or professional you trust before making your decision

Securing A Small Business Loan

To secure a business loan, you will need to do some homework (Other than the tasks suggested in the previous section) and develop some kind of a business plan for your funding needs. You will need to work as an advocate of your business and promote its need, making a clear case for why your business needs the loan you seek and how this is the right way ahead for you. You will need to have a clear idea of the budgets involved, so you know how much money you need to borrow.

You should also have a fact-based understanding of when you can repay the loan and our loan calculator can help you get accurate figures for your estimates.

These are the necessary steps that you will need to take for securing a loan using an online lending service:

Application Form
Fill Loan Application Form
Upload Documents
Upload Supporting Documents
Finish
Wait For Application Process To Finish
Get Your Money
Sign Loan Agreement & Receive Money

Frequently Asked Questions

Traditional business lending is done via traditional banks. When you are looking for a traditional bank loan, your reasons and objectives make no difference on the way the bank may assess your application. They prefer larger loans, which is why, as a small business loan seeker, you might not get a big bank’s attention. On the other hand, alternative lenders, including online investors, are mainly focused on providing urgent help to small businesses and professionals.

They use technological tools to assess the borrower’s financial circumstances and decide to help – or refuse – fast. Banks, however, have a long application evaluation process, although they offer lower interest rates and service charges.

If you are looking to acquire unsecured small business loans, you should expect a higher interest rate than what a bank would offer. That’s because you probably have a new business without a stable revenue record, which means lending to you presents a higher risk to the lender. Similarly, if you have been operating your business for several years, and your business data shows steady revenue, the interest rates will go lower due to the lesser risk involved.

No. Your state of residence has no effect on the requirements of your loan application to acquire our services. From NSW, SA, and WA to QLD, TAS, VIC, and NT, wherever you live or operate your business, we will assess your application the same way. However, you must note that if your business is located in the midst of – or very close to – a tourist spot, this might suggest it is a seasonal business, which will certainly influence our evaluation of your application.

Most fintech lenders these days do not include a penalty clause in the loan contract for early repayment. However, you should always read the fine print of the contract before signing it to be sure. While some lenders might consider the value their loan provided to you as outweighing receiving their money back fast, many others may not bother you for paying them back sooner than the loan term. Furthermore, if, at the time of applying for your loan, you have good reason to believe you might be paying it back sooner than the term, then you should only say yes to a lender who hasn’t included any early repayment penalty in the contract.

The need for this document with your application is simply to ensure that your lender has sufficient information about your current financial commitments and situation before they decide whether or not they are willing to loan you their money. This information allows your lender to determine the current financial health of your business and make an informed decision about your application. Read more.

Expanding your business by buying an existing business is a tried-and-tested strategy that a lot of successful businesses use. It gives you access to an existing body of loyal customers you didn’t have before. If your due diligence is firm, and your research clearly shows the purchase will be significantly profitable your business plans, then our lenders might be interested in giving you the money you need to execute the strategy.

Before you submit your small business loan application for this purpose, you should get realistic projections about your future revenue and costs. With these numbers you might be able to attract favourable loan terms.

Many factors dictate the eligibility of a business loan application, such as:

  • The length of your experience and the age of your business (The higher these numbers, the more confident a lender will feel investing in your business)
  • The industry you operate in and its imminent future (Many lenders weigh risk by the prospects of the whole industry rather than what your business alone might be able to achieve)
  • The current financial situation of your business, which will be evaluated based on the figures your bank statements provide
  • Your credit history and current score, which an investor would likely want to know before they decide to loan you their money or not

It’s always prudent to seek professional advice from a lending broker with your questions about eligibility, since they work with multiple lenders and know their current preferences.

Additionally, you can certainly secure a small business loan even if you are an independent professional or a sole trader.

The foremost question you should ask yourself is why is the business you’re thinking about buying is being sold? That question will get you to focus on what could be happening behind the scenes of the sale. It’s possible the current owner is about to go in loss, which means you wouldn’t want to buy their business. Other common reasons why a business is put on sale is an intent to retire, moving to another country due to family commitments, etc.

The best advice in this regard would be to make sure your due diligence is comprehensive, you have thoroughly studied the target audience, and you’re buying a business with favourable competitive conditions.

That depends on the kind of lending you go for. With an alternative financing agency like ours, you can easily secure a business loan as long as your business profile looks good. The only real question our lenders ask themselves while assessing your application is whether or not you will be able to pay back their loan without damaging your current business. If they think you can manage that, most of these lenders would be willing to lend you the money you need. If you’ve been worried about this problem, why not submit an application and learn? It won’t cost you more than a few minutes of your time to have your answer.

No. Following the regulations in Australia, we do not require you to offer any deposits to secure your loan. Unless you are looking for a specific kind of loan – equipment finance – you will probably never have to offer a security deposit.

Pre-signing Checklist

  • Make sure you know you can repay the loan you are signing for
  • Make sure you know the exact figures involved, especially all service fees and interest amounts
  • Make sure you feel the agreement you are signing is the best deal you can get

Common Reasons For Loan Application Refusals

  • Inconsistent revenue stream and history
  • Very short history and little experience in business
  • Ongoing financial liabilities and loans
  • Seasonal nature of business
  • Inevitable downfall of your industry
  • Short list of clients and suppliers
  • Subpar credit score or history

Common Situations Where Small Business Loans Assist

  • Situation 01: You manage a seasonal business and currently have a very limited cash at hand while your business season is around the corner. Getting a small business loan makes perfect sense if you can get reasonable terms and have a track record of enough sales to see through the loan repayment.
  • Situation 02: You come across an exclusive opportunity to purchase shares or property on a discounted price on a tight deadline but lack the cash to avail the opportunity in time. In this case, make sure the specifics of the whole deal are clear and secure a small business loan.
  • Situation 03: A business premises you have always wanted has just become available and it could significantly affect the value of your business, but you do not have the money to get that property. Study the details carefully and then borrow the money.

In all honesty, there may be endless situations where seeking small business loans could be justified. Any business need that demands immediate resolution or remediation and can be solved through timely financing is a deserving cause for you to look for a suitable small business loan. Fortunately, you can now get access to financing much more easily than ever before – even if you have poor credit.