Without a doubt, your business will need access to capital as it grows. So, you need to know what are the different types of business loans available.
The financing options at your disposal range from long term low-interest loans to same-day funding. And with fintech lending becoming more popular, this widens the range of available financing.
As a business owner, you need to research all the funding options to make an educated decision. But therein lies the problem.
Since there are so many different types of business loans, it’s tricky to determine which one is the best for your company.
But don’t worry, you’re in the right place.
This article explores the types of business loans Australia has to offer.
Five Types of Business Loans Available to Small Companies
Type #1. The Business Line of Credit
Arguably one of the most common types of short-term business loans, the business line of credit offers a lot of flexibility.
This is an all-purpose loan, which means you can use it for any expense that incurs within your business. Better yet, you only pay an interest rate on the money you withdraw, not the entire approved sum.
But you should know that the business line of credit is not really a loan. It’s more like having a business credit card.
You don’t get approved and receive a specific sum upfront. Instead, your business gets qualified to determine the maximum funds you can access. Think of this as having a pool of funds you can tap into whenever necessary.
Due to that, many businesses use this type of loan to cover unexpected expenses. But it’s also okay to use the business line of credit to cover the following:
- Cash flow
- Operating expenses
Lastly, you should know that there are unsecured and secured business lines of credit.
Type #2. SBA Loans
Among the different types of long term business loans, these are commonly available to businesses with excellent credit history.
Even so, SBA loans are highly desirable, and many small businesses apply for them.
By getting this loan, you get the benefit of long term repayments and meagre interest rates.
However, the approval process is time-consuming.
To put this in perspective, it takes about 45 days to get the loan if there are no hurdles during the vetting process. And that’s after you gather all the necessary documents and submit your application.
But if you don’t need the funds immediately to boost your cash flow, an SBA loan could be one of the best choices. The reason being that the low interest rates and long term repayments may allow you to significantly increase your sales.
Type #3. Accounts Receivable Funding
If you need funding fast, accounts receivable funding, also known as invoice factoring or financing, allows you to trade your outstanding invoices for money.
But keep in mind that you won’t get the total amount as listed on your invoices.
Typically, lenders will only give you between 80%-90% of the entire sum. They’ll keep the remaining money since they’re basically buying your invoice. And the invoices are also collateral in this deal.
But how do repayments work?
There is a weekly fee that gets billed until your customer covers the invoice. Then, you get the percentage of the invoice once the lender receives the total amount from your client. However, keep in mind that there could also be a fee for that.
Lastly, invoice factoring is excellent for companies that struggle with late invoices that seriously strain their cash flow. They can use the money to cover all operating expenses.
Type #4. Small Business Loans
When it comes to the types of business loans available to small companies, small loans are among the top choices.
This is because it’s relatively straightforward to get this loan and the interest rates might not be that high. After all, the lenders determine the rates and terms based on the business itself.
Various factors affect the term and the rates, and these may vary from one lender to another. And, generally, the better your business stands, the more favourable conditions you get.
Also, these loans are available with online and offline lenders. It’s worth mentioning that banks may cap the use of funds, although this doesn’t happen with fintech lenders.
That being said, small business loans can be used for different purposes. But it’s mainly to cover significant upcoming expenses or the costs related to growing your business.
Type #5. Equipment Financing
This is one of the best types of business loans to get if you don’t want to pay for the equipment right away. It’s because you can finance it through a loan and get some tax benefits in the first year.
But the use of these loans isn’t limited to replacing old equipment. You can also utilise them to introduce new products or services into the market.
Similar to some other loans, equipment financing works particularly well for growing businesses. You can use it to take your company to the next level and avoid significant upfront costs. Still, you should make sure that the loan won’t put a strain on your cash flow.
With this loan, there are collateral requirements that vary depending on the lender you choose.
But the silver lining is that the equipment you get is regarded as collateral. This means that you don’t have to tie up your business or personal assets to the loan. Should you default, the lender seizes only the equipment to cover the expenses.
Another benefit is that lenders rarely introduce credit barriers.
Which Loan Is for You
To understand what types of business loans are best, you need to carefully assess your current finance and revenue. Additionally, you need to account for the future growth and the reasons you’re taking a loan.
Note that you need to be particularly cautious if you’re taking out a loan to cover operational expenses or cash flow. In that case, it might be better to look for some short-term financing options such as accounts receivables funding and the business lines of credit.
But whatever you choose to take, you shouldn’t rush it and feel free to solicit professional help.
Unsecured Finance Australia is here for you.
We offer unsecured business loans starting from $5,000 up to $300,000, which could be just what you need to give your business that much-needed push.
We ask for minimal documentation and offer 24-hour approval.
You can find out more about our unsecured business loans here.