Types of business loans in Australia
The term business loan covers a wide range of products with significantly different structures, rates, and appropriate uses. Understanding the distinctions helps businesses avoid taking the wrong product for their situation.
Term loans
A term loan provides a lump sum that is repaid over a fixed period with regular repayments. Terms range from one to ten years or more depending on the lender and purpose. Term loans suit businesses funding specific, identifiable investments such as equipment purchase, fitout, or expansion where the return justifies the debt and repayment can be modelled with confidence.
Lines of credit
A line of credit is a pre-approved facility from which the business draws funds as needed, repaying and redrawing as cash flow permits. Interest is charged on drawn balances only. Lines of credit are structurally similar to overdrafts but are typically a standalone facility rather than being attached to the transaction account.
Equipment finance
Equipment finance covers the purchase of business assets including vehicles, machinery, and technology. The most common structures are chattel mortgage (business owns the asset and it secures the loan), finance lease (lender owns the asset during the lease term, business uses it), and operating lease (off-balance sheet rental). The right structure has tax and accounting implications worth discussing with an accountant.
Business overdraft
See our detailed guide on business overdrafts for a full explanation of this product, which is one of the most flexible and commonly used working capital tools for Australian businesses.
Secured vs unsecured business loans
Secured business loans require an asset as collateral. Residential or commercial property is the most commonly accepted security, providing lenders with recourse in the event of default. Secured loans typically offer lower interest rates, higher loan limits, and longer terms.
Unsecured business loans rely on the business's cash flow and financial performance rather than physical security. They carry higher rates and lower limits but are accessible to businesses without property to offer. Personal guarantees from company directors are almost always required for unsecured lending to businesses.
Personal guarantee implications
A personal guarantee makes the director personally liable for the debt if the business cannot repay. This means your personal assets, including your home, can be at risk. Understand what you are signing before providing a personal guarantee on any business loan.
Interest rates and fees on business loans
Business loan rates vary significantly depending on the lender, loan type, security offered, and the financial strength of the business. As a broad guide, secured business loans from major banks typically range from 7% to 12% per annum. Unsecured loans from non-bank lenders range from 12% to 35% or more depending on the product. Short-term working capital products (merchant cash advances, invoice finance) can carry effective annual rates well above this.
Beyond the interest rate, watch for application fees, annual fees, early repayment penalties, and account-keeping fees. The comparison rate (which incorporates fees into the effective rate) is a more useful comparison tool than the headline rate alone.
What lenders assess when evaluating a business loan
Lenders assess the five Cs of credit: character (your credit history and reputation), capacity (ability to repay from cash flow), capital (your own investment in the business), collateral (assets available as security), and conditions (the economic environment and purpose of the loan).
Specific requirements include trading history (typically 12 to 24 months), financial statements or tax returns, business bank statements, and details of existing business and personal debt. For secured loans, property valuations are also required.
How to apply for a business loan in NSW
The application process varies by lender and loan type. For major banks, the process is typically more documentation-intensive and time-consuming. Non-bank lenders have streamlined their processes significantly, and some can provide conditional approval within hours for straightforward applications.
Working with a specialist business finance broker gives businesses access to a wider range of lenders and products, and an advocate who can package the application to maximise approval odds. For NSW businesses, OverdraftMe focuses exclusively on business finance and works with businesses to identify the right product and lender for their specific situation.
Banks vs non-bank business lenders
Major banks offer the lowest rates for well-qualified businesses but have more restrictive lending criteria and slower processes. They prefer established businesses with clean credit, strong financials, and ideally property security.
Non-bank lenders (fintechs, specialist lenders, challenger banks) offer faster approvals, more flexible criteria, and access to products the majors do not offer. They are the primary option for businesses that do not fit the major bank template. The trade-off is higher rates and sometimes less favourable terms.