If you have never tried to get a business loan, you probably aren’t familiar with the process or what’s required.
Here we answer some of the basic questions that are asked regularly about how to get a business loan.
How can I get a business loan?
This is a very broad question. The best way to begin is to look at your reason/s for getting a business loan, the amount you need and if you can afford to repay it. The first questions a potential lender will ask are ‘What do you need the money for?’ and ‘How much money do you need?’. Once you have answered these questions, contact your Broker!
There are so many types of business loans available. The right one for you will depend on your circumstances. For example, if you don’t have assets to pledge as collateral, you will need to get a business loan that is unsecured. If you have collateral (residential / commercial property or business assets), you will be able to get a business loan that is secured. The difference between these two types of loans is that generally you can borrow more for a lower interest rate when your loan is secured.
The type of loan can also depend on what you plan to use the money for. Equipment finance, for example, is a specialised type of business finance used to purchase equipment. If you are seeking short-term funding for cash flow... either a business overdraft, a line of credit or an unsecured business loan could be the right loan for your needs.
Which bank is best to get a business loan from?
Many banks offer a range of business loans, so it’s impossible to say which bank is the best for a business loan. For a traditional bank loan, the bank will require you to complete a large amount of paperwork. For a new business, the bank will also require a business plan, including profit and loss projections. Even though banks differ somewhat in their approaches, they tend to offer the same range of financial products. These include short-term and long-term loans, loans with fixed rates and variable rates, secured and unsecured business loans, business overdrafts, lines of credit, credit cards and equipment finance. The great thing about having a QPF Broker on your side, is that once we have your details on file, applying for future loans becomes super simple. And often we'll spread your lending with different lenders so you don't risk having all your eggs in one basket.
Besides the banks, we also have access to non-bank lenders that specialise in small business loans. They offer a wide range of finance options to meet the needs of businesses in various financial situations.
Is it hard to get a business loan?
This will depend on your financial situation including how long you have been in business, whether you have collateral and the type of business finance you are looking for. For example, for a typical SME, it’s often difficult to get a traditional bank loan. You have to submit a large amount of paperwork and often wait six to eight weeks for approval. In fact, a survey of small to medium enterprises showed that banks reject around 75% of their direct loan applications. But never fear, QPF has built strong relationships with the banks over the years so we can often get things over the line where other Brokers, or your bank manager cannot.
Non-bank lenders, including fintechs, are not constrained by banking regulations, so they are able to make more loans to small businesses. Since the loans they make are unsecured, the interest rates are generally higher than those of traditional bank loans. As noted, the innovative technology they use simplifies the lending process. Once it has been determined that you can repay the loan, and you are approved, the funds are transferred into your account. In this situation, it’s not hard to get a business loan if you meet the criteria of the non-bank lender, but it can be more expensive.
How can I get a business loan without collateral?
When you don’t pledge collateral it’s called an ‘unsecured’ loan. Even if you don’t have collateral, there are many loan options available. The main difference is that you usually won’t be able to borrow as much and you will generally pay a higher interest rate. For example, a typical rate for a secured business overdraft is around 8% per year, while the rate for an unsecured business overdraft is around 12%. That’s 50% more interest for the unsecured version of the same loan.
Certain types of loans don’t require existing collateral but use what you are purchasing as collateral. For example, with equipment finance, the item you are purchasing acts as the collateral while you are repaying the loan.
QPF has access to a number of non traditional lenders that provide unsecured loans, so don’t require collateral. They safely and securely analyse your finances and credit information to determine if you are approved for a loan and the loan amount.
Can I get a business loan with no credit?
This depends on what you mean by ‘no credit’? If you don’t have a credit record at all, it can be challenging to get a business loan. The same is true if you have bad credit which can be a result of late payments, defaults and / or bankruptcy.
If you have no credit record, it’s recommended you start somewhere. This could be getting a business credit card with a low limit and making sure that you make all the payments on time. This way you will build a positive credit record for when you want to take out a larger business loan.
If you have bad credit, it can be challenging to get a business loan. Some non-bank lenders specialise in providing business loans to people with bad credit but will charge a higher interest rate due to the higher risk.
Do you need to put money down (a deposit) for a business loan?
No. A secured loan will require some form of collateral (property or the equipment being purchased) but no money from you. An unsecured loan does not require any collateral, so there’s no money down (deposit) to get a business loan.