What to Look for When Choosing Your Small Business Loan
When choosing a small business loan in Australia, it’s important to be fully informed about all of your different options.
There are many small business lenders in Australia offering different types of small business loans, which makes for a lot of prospects to sort through when looking for the right option for your business.
This article will give you a quick run-through of what to look for when you’re first choosing a small business loan:
How you want to access your funds
Whether you need to access your funds on a semi-regular basis, or if you need funds up front and in full, will determine what kind of a small business loan you will need. An overdraft or line of credit is designed to help with cash flow while a ‘fully drawn advance’ is an upfront loan designed to help you buy new business equipment or expand your business.
Upfront loans are paid back in regular intervals of a portion of the loan plus interest. The repayment amount will depend on the term and / or length of the loan. To discuss what kind of loan term is right for your business, give us a call on 1300 736 780. We’ll help you to calculate how much you can afford in repayments. Essentially the longer the loan term, the less you will have to pay in each instalment but the overall interest cost will be higher.
Secured loans can be a bit cheaper than unsecured business loans, however, they also require you to put up collateral, or security, for the loan. This can include various types of assets, including property or business assets. While secured loans will have a lower interest rate, be aware that the lender can seize your property or asset if you can’t pay on time. For this reason, many small businesses aren’t comfortable putting up their house as collateral for a small business loan. Many other small businesses simply don’t own an asset or property that can be used as security.
Fixed Vs Variable Interest Rates
There are two kinds of interest rates offered on small business loans in Australia: Fixed and Variable. A fixed rate is, as it sounds, is a set interest rate that remains the same throughout the term of the loan. On the other hand, a variable interest rate changes with the market. With a fixed rate, the lender will bear the risk if the interest rate moves, while with the variable rate you will accept this risk. With a variable rate you could end up paying less over the term of the loan, however, you also run the risk of the interest rate rising beyond your business’ ability to pay.
Different lenders will have different fees for their small business loans. These can include establishment or application fees, ongoing monthly fees, early repayment fees, exit fees: the list goes on. While one lender may offer a lower interest rate, you could be paying more overall in loan fees when compared to another lender with a slightly higher interest rate. Ensuring that you include any kind of hidden loan fees when comparing monthly repayments will give you a better idea of the true cost of the loan.
Some lenders (mostly banks) will ask for detailed business plans when applying for small business loans in Australia. These documents should include a profit and loss budget, cash flow projections and a basic financial history at the least. Some lenders won’t require this kind of documentation; instead, they’ll use business and accounting data to assess risk.
At QPF, we have access to more than 40 lenders and work with you to discover your needs and tailor a loan to suit your business. We take the hassle out of sourcing the right loan, so you can get back to business.