Business loan options

Starting a new business, purchasing an established one or just expanding an existing business, there are many different financing options available. Professional advice from a qualified accountant is always recommended to determine the most optimal finance structure before applying for bank finance.

What are the general requirements?

2 years ABN and 2 years tax returns are generally considered the minimum requirements for applying however every circumstance is different and business loans are assessed on a case by case basis.

Whilst the business must prove sufficient cash flow to be able to repay the loan it is the security for the loan that is most critical. The majority of business loans require some form of security.

Common security types of Business Finance:

  • Commercial Property
  • Residential Property
  • Motor Vehicles
  • Equipment
  • Cash
  • Debtor Books
  • Taxi Licenses
  • Rent Rolls
  • Franchise Fees

What about unsecured small business loans?

If no security exists but the business has strong income evidence, then a small unsecured overdraft or term loans, can be considered. Generally, the maximum unsecured business loan is $20,000 but businesses with a strong assets & incomes could consider up to $100,000. Interest rates are usually much higher than secured business loans.

What about commercial property loans?

Buying a commercial premises to operate a business from is the most common Commercial Property Loan but some investors purchase with the goal of renting the premises to a third party.

Commercial Property is divided into 2 categories, Non-Specialised and Specialised. This has the biggest impact on which lender and which type of facilities are possible.

  • Retail Shops
  • Offices
  • Warehouse/Sheds

*Must be Located in a Large Population Centre

  • Service Stations
  • Rural Farms
  • Child Care Centres
  • Places of Worship
  • Caravan Parks
  • Hotels/Motels

*Located in remote areas or small population centres

The standard loan term is 15yrs however some niche lenders will consider up to 30 year terms for Non-Specialised securities often at cheaper rates.

What about leasing?

Leasing can be used to fund the purchase of new and used vehicles or plant and equipment.

Leases usually have a 5 year term with a balloon payment at the end. There are a number of different options and accountant advice should be sought before deciding.

Types of Leases include:

Finance Lease
  • Bank owns the asset
  • Monthly Repayment is all tax deductable
  • Offer to purchase the asset from the bank at lease end
  • Depreciation cannot be claimed
  • GST is charged on the monthly repayment amount
Hire Purchase
  • Agreement to purchase equipment within agreed repayment terms
  • Bank owns the asset but passes to borrower upon final payment
  • Only the interest is tax deductable
  • Depreciation on the asset can be claimed
  • GST is charged on the asset as well as loan interest and fees
Chattel Mortgage
  • Borrower owns the equipment
  • Deposits are acceptable
  • Only the interest is tax deductable
  • Depreciation on the asset can be claimed
  • GST is charged on the asset not the loan

What about cash flow funding?

Cash flow funding is when you borrow against the value of outstanding invoices.

Provides a lump sum today instead of later when the invoices are paid which helps manage seasonal and short term cash flow needs. Assessment is based on the strength of the debtor not the business that is applying for the loan.

Debtors cannot be individuals or personal consumers.

An example of a suitable business is a smash repair where majority of invoices are issued to and paid by insurance companies.

An example of an unsuitable business is a Home Handyman where almost all invoices are issued to and paid by individuals or personal consumers.

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