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Business Loans

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Business Loans to Help You Take the Next Step

Business Loans to Help You Take the Next Step

If you’re looking to start your own business or you’ve recently gotten yours off to a start, congratulations! There are few things in life more satisfying than being able to be your own boss. You set your own hours, determine the direction of your business and even decide where you’re going to work from. Those are some pretty cool perks if you ask us.

However, it’s not all fun and games – there are also few things as stressful as being your own boss, particularly if you have employees. Sometimes you need to make big decisions and tough calls.

You may need to think about business loans, what type to get, how your repayments are going to be set and where you’re going to apply. Those are some pretty big topics and it’s understandable if you’re feeling a little overwhelmed, particularly if you’re already wearing multiple hats.

We’re here to give you the rundown on everything business loans related and give you information that may help you feel more confident in your future business decisions.

What are business loans?

Business loans are similar to personal loans but are specifically for business purposes. They can range from small business loans to larger business loans and could be a way of getting your business off the ground, through a rough patch or scaled up and moving in the direction of your business goals.

Business loans are typically paid back over an agreed period of time and will usually accrue interest on the principal loan amount. They can be either secured or unsecured loans and will usually accrue interest at either a variable or fixed rate.

What can business loans be used for?

Business loans can be used for a variety of different reasons. These can include:

  • Business overheads or expenses
  • The purchasing or hiring of necessary equipment or machinery
  • Wage costs
  • Start-up costs
  • Business supplies
  • Furniture
  • Office rental or property expenses
  • Business development
  • Marketing expenses
  • Expanding and business growth
  • Cash flow

What information do you need before applying?

Before you approach a lender or bank, it’s important to ensure that you have all your information ready to go. Having a well-prepared business plan and documents will show your potential lender that you’re serious, responsible, organised and willing to put in the time and effort to better your business, which are all great things to show any potential lender.

You’ll want to calculate how much money you would like to borrow and what these funds will be spent on, as well as your current business standing, if relevant. Illustrate to your potential lender how much money you need to achieve your specific business plans and show your lender that you will use their money wisely to further your business.

Have some idea of your credit score before you submit your application. If you have a fairly good credit score, this will be an asset to your application. If your credit score isn’t looking the healthiest at the moment, start planning how you can make changes to improve your score. This may mean that you may need to wait a little while before going ahead with your business loan application while you make some improvements to your score and pay off old debts, but it may be worth it in the long run.  

Do your research and have the required documentation ready. Not only does this look great from the lenders perspective, showing that you’re organised, but it will save you a lot of time and effort later on the down the road. Lenders may ask for your financial statements, business bank statements, financial projection, business licenses, leases and a number of other documents. Be prepared and have these all on hand if you do need them.

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Key takeaways:

  • Business loans are paid back over an agreed period of time and will usually accrue interest on the principle loan amount.
  • You’ll want to calculate how much money you would like to borrow and what these funds will be spend on.
  • You should have an understanding of your credit score and whether you still need to pay off old debts.

Secured vs. unsecured

There’s a key difference between secured and unsecured business loans. Unsecured business loans refer to loans that are not secured by any type of asset or collateral. They’re not secured they are usually for smaller amounts of money but can generally be attained much faster than a secured business loan. Lenders will typically look at the strength of your cash flow as ‘security’ in place of assets such as property, inventory or vehicles. They’ll also take a close look at your account history, creditworthiness, and time in business before determining an outcome on your application.

To recap:

  • Unsecured business loans are loans that are not secured by any type of asset or collateral. They are usually smaller amounts of money but can be attained faster than a secured business loan.
  • Secured business loans allow you to apply and be approved for larger amounts, as the lender has some form of security or asset from you.

Secured business loans, on the other hand, have some form of security or asset backing up the loan as collateral. This means that if your business has property, vehicles or other assets that are used as security on the loan, the lender may rely on the sale of these assets if you as the borrower are unable to meet the loan repayments for an extended length of time. With secured business loans, you are generally able to apply and be approved for larger amounts as the lender has that guarantee of collateral. Loan applications may take a little longer however, as the lender may need to value and confirm your assets and get more paperwork from you.

The type of loan that you apply for is usually dependent on your business and what you need it for. No two loan products are going to be the same and both secured and unsecured loans have their pros and cons. Determining which is best for you will take a bit of research and time, but is a great first step to figuring out if a business loan is right for you and your business.

Variable or fixed-rate

It’s no surprise that business loans require a lot of forethought and pre-planning. Once you’ve decided to apply for a business loan and have made the decision on whether you’re going to get a secured or unsecured loan, you’ll now need to take a look at what kind of interest rate will be best for you. Depending on your needs you can take a look at both variable or fixed interest rates.

Fixed-rate business loans have the same interest rates for the entirety of the loan term. Variable interest rates, on the other hand, have an interest rate that can change over time. Both different types of interest rates have their pros and cons and what you choose will be dependent entirely on your own situation. 

Fixed-rate business loans tend to be the loan of choice for many business owners. They ensure that you know what your repayments are going to be for the term of the loan and help avoid any unwanted surprises in terms of larger than expected repayments amount. This is great if you want predictable repayments over time. It is important to keep in mind though that it is quite possible that the interest rate may drop below the interest rate you have locked in in your personal contract.

The price of variable rate loan will increase and decrease over time. Variable interest rates are great if you want to take advantage of those drops in the interest rate, which would mean that your repayments would be less. In general, a variable interest rate will be set at a slightly lower rate than that of a fixed-rate loan, however, it is important to keep in mind the fact that that rate may rise and you could be paying higher interest for a time. 

Can I refinance my business loan? 

Yes, you can refinance business loans! This is a great option if you’re looking to consolidate several debts into one repayment or you’re looking to take advantage of a lower interest rate. What many business owners don’t realise is that the loan they took out at the beginning of their loan journey may no longer be the right fit for their business.

By considering a refinancing option, you may be able to not only save your business some money but you may be able to find a new business loan product that will be a better fit for your business in terms of repayment frequency or better additions to the loan. If you’ve had a business loan in the past it could definitely be worth having a look into your options to see if refinancing your business loans would be a good business move for you. 

Business loans for start-ups 

It’s no secret that available capital is incredibly important to businesses. When you’re first starting out, having enough capital to get things going may seem like a bit of an impossibility. Start-up business loans may seem to be incredibly difficult to find, but with a little research on your part, you can find a lender who will be able to help get your brand new business off the ground. Larger traditional lenders tend to be a little more reluctant approving start-up business loans as the business hasn’t yet proven that it is a reliable risk and can meet the repayments with a reliable income history. But this doesn’t mean that it’s impossible to find a lender willing to help you out, you simply need to get a little more creative and look for smaller lenders to help. 

Some of the smaller banks and credit unions offer business loans to people who are looking to start small businesses. The application for these loans usually requires detailed business plans of how you intend to make an income and service your loan, and in some cases, you may need to put up security against the loan as well.

There are also small lenders out there in the fintech industry who may be able to help you out with a business loan as well. These lenders will usually provide smaller loan amounts than a traditional lender will, but if you’re looking to get your foot in the door to start trading, this might be the way to go for you. Their applications tend to be quick and easy and you’ll usually have an answer pretty fast.

When is the best time to think about applying for business loans?

This is dependent on your business and your business plans. If you need a loan now to get you through a tight spot or to get your business up and running, then. by all means, start shopping around for the best fit for you and your business. If you don’t need extra capital now, but you know that you will sometime in the near future for planned business expansion or large planned purchase, you can start researching your options now to see what’s out there. Having healthy sales and cash flow when you apply for your loan will also look great on your loan application if you’re looking at your not too distant loan options.

The right time to apply for business loans is going to be different for every business. Whenever you do decide you need some extra capital, make the decision based on your business and what will be best for you.

The takeaway

Business loans are versatile loans that can help you out in a variety of ways. Regardless of whether you’re looking to get a start-up business loan that is unsecured with a fixed interest rate or you need to purchase some new equipment for your growing business, there are options out there for everyone. From large traditional lenders such as banks or smaller lenders in the fintech industry, your options for financing are vast.

Finding the right business loan can be admittedly hard. Your business is constantly evolving and what might have been right for you 2 years ago, may no longer be the perfect fit for your business today. If you’re looking to refinance your current loan to a loan product that is better suited to your business today, you’re in luck.

Regardless of whether you’re looking for a brand new loan or you’re looking to revamp your old loan, begin your loan journey with a solid business plan and back yourself up with all the documentation that you might need, your loan journey will be smooth and quick.

 

Reminder

We’re not financial advisors and we don’t know the ins and outs of your business. Make sure you consult your accountant or financial planner before taking out a business loan.