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Compare Australia Business Loan Rates

By December 6th, 2023No Comments
small-business-loan-rates

Updated: March 2023

Key Takeaways

  • Since business loans have a risk premium based on the lender’s assessment of the company’s possibilities for success, they have somewhat higher interest rates than other loan types.
  • The interest rate and cost of borrowing on a business loan can vary based on the type of finance you choose.
  • The best business loan is usually the one with the lowest interest rate and the best terms.

Business loans can be a valuable resource for entrepreneurs and small business owners who need financial assistance to start or expand their businesses. In Australia, there are many options for business loans, but finding the best rates can be challenging.

To find the best business loan rates in Australia, it’s important to understand the different types of loans available and compare rates from different lenders.

When comparing business loans, it’s important to consider factors such as interest rates, fees, repayment terms, and eligibility criteria. Some lenders may require collateral or a minimum credit score to qualify for a loan, so it’s important to do your research and shop around to find the best loan for your business’s needs.

What is a business loan?

Business loans are financial arrangements between business owners and private lenders. Businesses require capital to fund operations. Banks and private lenders are willing to lend them the cash up front as long as they repay it on time and with interest.

A business loan can cover costs that the company can’t pay on its own at that particular time. This includes buying an office or storefront, upgrading office equipment or IT operating systems, paying employees’ salaries, or paying advertising costs during the early stages of a business. They have slightly higher interest rates because they include a risk premium based on the lender’s assessment of the company’s chances for success compared to other types of loans.

Generally, you can apply for a business loan if you have been in business for at least six months and bring in at least $5,000 per month in revenue. The amount you can borrow depends on your ability to pay it back, just like any other financial product. For some small business loans, the minimum loan amount is $5,000 and the maximum is $500,000. Business loans are also subject to fees in addition to interest charges.

How do business loans work?

Business loans work in the same way that other loan products do. If approved, your lender will lend money to help with working capital needs for your company or asset purchases. You will also be charged a fixed or variable interest rate throughout the loan. You can choose a repayment schedule that works for you. The most common options are monthly, quarterly, or yearly. Loan terms can range from 1 to 30 years.

How to apply for a business loan in Australia

To apply for a business loan in Australia, you typically need to follow these steps:

  1. Determine the type of loan you need: There are different types of business loans available in Australia, including secured and unsecured loans, overdraft facilities, lines of credit, and credit cards. Decide which type of loan will best suit your business needs.
  2. Check your eligibility: Lenders have different eligibility requirements, but generally, you will need to have been in business for a certain period (usually 6-12 months), have a registered Australian Business Number (ABN), and meet minimum revenue or profit requirements.
  3. Gather your documentation: Lenders will typically require you to provide documentation such as financial statements, tax returns, bank statements, and business plans. Make sure you have these documents ready.
  4. Compare lenders: Research and compare different lenders to find the best interest rates and terms for your needs.
  5. Apply for the loan: Once you have found a suitable lender, you can apply for the loan either online, by phone, or in person. You will need to provide information about your business, financials, and the purpose of the loan.
  6. Wait for approval: The lender will review your application and may request additional documentation or information. Once approved, you will receive a loan offer outlining the terms and conditions.
  7. Accept the loan: If you are happy with the loan offer, you can accept it and the funds will be disbursed to your business account.

Start-up businesses may also need to provide a detailed business plan and cash flow projections to demonstrate their viability and ability to repay the loan.

It’s important to note that different lenders may have different requirements for documentation, so it’s always a good idea to check with the lender beforehand to ensure you have all the necessary paperwork.

Compare Business Loan Interest Rates

Business loan interest rates can be fixed or variable. Consider which type of interest rate would be more suitable for your business needs.

Loans with variable rates typically offer a lower initial rate, which can be advantageous if interest rates are expected to fall in the future. However, the interest rate and your payments may fluctuate over time, which can make budgeting and planning more difficult.

On the other hand, loans with fixed rates offer a predictable payment schedule, which can make budgeting and planning easier. Your payments will remain the same over the fixed interest period, regardless of any changes to the market interest rate. However, the initial interest rate may be higher than that of a variable-rate loan, and you may miss out on potential savings if interest rates fall.

The choice between a variable-rate loan and a fixed-rate loan depends on your individual circumstances and preferences. It’s important to carefully consider your business’s financial situation, budget, and long-term goals before choosing a loan product.

Important Note: Business loan interest rates can vary depending on the type of finance product you choose.

Type of Loan Description/Purpose Average Interest Rate Range Notes
Bank or business overdraft/Line of credit A business overdraft is a revolving credit facility with a predetermined limit specified by the financial institution. It is a revolving credit facility because you can borrow a particular amount, pay it back, and borrow that sum again without needing to go through the credit approval process again.

As long as the facility amount at the end of the month is less than the facility limit, there are typically no fixed repayment restrictions.

This differs from a business loan, which has a fixed monthly repayment fee, and once you pay back the principal according to the repayment schedule, you generally cannot access that portion of the loan again without going through the loan application process again.

Secured overdraft:

Average interest rates for secured overdraft can range from 14.95% to 18.95%.

Unsecured overdraft:

Average interest rates for unsecured overdraft can range from 18.95% to 24.93%.

Source: https://www.money.com.au/business-loans/business-overdraft

Typical amounts: 
You can borrow up to $100k for an unsecured overdraft, though the minimum loan amount and maximum loan amount can vary between loan products.Source: https://www.finder.com.au/business-banking/overdraft-accounts
Secured personal loan This type of loan requires security or collateral of some sort to be approved. The lender or bank may ask for collateral if a borrower takes out a large loan to buy a specific asset. Secured loans may allow borrowers to benefit from cheaper interest rates since they pose less risk to lenders.

Some secured loans, such as short-term instalment loans and personal loans for those with bad credit, may have higher interest rates. Your collateral may be taken if you are unable to pay your monthly fee.

Average interest rates for secured personal loan can range from 4.45% to 11.30%.

Source: https://www.ratecity.com.au/personal-loans/secured

Typical amounts:

You can borrow anywhere up to $100,000 with a secured personal loan, though the minimum loan amount and maximum loan amount can vary between loan products.2

Source: https://www.finder.com.au/personal-loan-maximum-amount

Unsecured personal loans Unsecured loans are riskier than secured debts since they are not supported (secured) by assets. Your ability to repay the loan and your credit score are the major factors determining the approval and interest rate. Average interest rates for unsecured personal loans can range from 6.69% to 10.99%.

Source: https://www.ratecity.com.au/personal-loans/unsecured

Typical amounts:

You can borrow up to $100k for unsecured bank loans, though the minimum loan amount and maximum loan amount can vary between loan products.

Source: https://www.finder.com.au/personal-loan-maximum-amount

Business credit card A business credit card is a credit card that can be used to pay for expenses connected to your business.

Using business credit cards can help business owners keep their personal and professional spending separate. It can aid in cash flow management because the funds are utilised on credit, however, there are expenses such as interest and fees.

They may also provide extra perks like participation in rewards programmes, depending on the card type and issuer.

Average interest rates for business credit cards can range from 9.99% to 20.74%.

Source: https://www.finder.com.au/credit-cards/business-credit-cards

Typical Annual fees:

Annual fees may vary, but typical costs can range from $0 up to $1,750.

Source: https://www.finder.com.au/credit-cards/business-credit-cards

Interest-free days: Usually vary from 0 to 55 days

Source: https://www.finder.com.au/credit-cards/interest-free-period-credit-cards

Invoice Financing Invoice financing, also known as accounts receivable financing, is a type of business financing in which a company uses its unpaid invoices as collateral to obtain a loan. With invoice financing, businesses can access funds quickly and easily, without having to wait for their customers to pay their outstanding invoices.

Invoice financing can be a useful option for businesses that have long payment terms or that are experiencing cash flow problems. It can help them to access the funds they need to cover operating costs, pay suppliers, or invest in growth opportunities.

There are no interest payments or required assets. The finance is limited to the size of invoices.

Source: https://www.finder.com.au/invoice-financing

Upfront fee:

Typical fees may also vary and can start at $500 or 3%-5% per invoice.

Source: https://www.finder.com.au/invoice-financing

Business term loans These are long-term borrowing options perfect for financing the purchase of the real estate, buildings, machinery, and equipment, as well as for taking equity out of existing business assets to pay for startup or growth needs. Average interest rates for business term loans can range from 6.29% to 15.99%.

Source: https://comparisonaustralia.com.au/business-loan-rates-australia/

Upfront fee:

Typical fees may also vary and can start at 2.5% to 3%.

Source: https://www.finder.com.au/business-loans

*Please take note that this data was derived from publicly available advertisements of business loan interest rates as of March 2023. Interest rates are subject to change at any time, and if you request a business loan, the specific lender will confirm the interest rate that will be offered to your company.

How do I compare business loans?

We want to make sure that every borrower gets the best deal possible when they compare business loans. Here are some of the factors you need to consider when comparing business loans.

Interest rates

The amount of interest you should expect to pay will vary depending on the loan type, the stage of growth your company is in, and the sort of institution you plan to borrow from.

For instance, a small business loan typically has an interest rate between 5% and 30% (source: OnDeck). However, large banks might be able to provide you with a more reasonable rate, whilst online or alternative lenders might be able to provide you with appealing loans but at a very high-interest rate. Be sure to estimate how much the loan will ultimately cost you throughout its life before you make a decision.

Factors that impact business loan interest rates

Below are some of the most important factors impacting business loan interest rates.

  • Credit score

One of the most important factors in determining your interest rate on a business loan is your credit score. Your credit history reflects how you have handled your financial responsibilities in the past, and it can affect your ability to qualify for a business loan. A high credit score will make it easier for you to qualify for a lower interest rate.

Your personal credit score and business credit score are two different but related numbers that demonstrate to lenders your or your firm’s creditworthiness. The two scores appear to differ only in that one is based on your personal financial history and the other is based on the financial history of your company.

  • Lender

The interest rate is determined by the lender and will vary depending on their assessment of your company’s financial situation. A higher-risk loan will have a higher interest rate than a low-risk one.

The lender will also look at your business credit score, which is determined by the credit bureau. The credit score can impact the amount the lenders are willing to lend to you. If you have poor credit, your business loan interest rate may be higher than if you have good credit.

  • The amount of time you’ve been in business

Lenders will also look at the amount of time you’ve been in business to consider whether or not you have a good track record of repaying previous loans. If you have a history of successful payments, then it’s likely that your current business loan will be more affordable than other loans. It’s also more likely that your business loan interest rates will be lower than if you had never paid off any other loans.

  • Annual revenue

The annual revenue of your business can also affect the loan interest rates. Most loans provide capital to businesses with a solid track record, but they also need to be profitable to pay back the loan and make a profit. If your business isn’t generating enough revenue to cover its costs, then it won’t be able to pay off its loans on time, making them riskier for lenders.

The higher your annual revenue, the more likely you are to get an interest rate that reflects your ability to repay the loan. This means that if you have lower annual revenue, you’ll probably need to pay more interest on their loan than they do on yours.

  • Existing debt

Having an existing debt can mean that you have less business profit to repay a loan which can be factored into the affordability assessment. This means that it might be difficult for you to obtain a business loan since lenders will look at your debt as a risk factor. In these cases, it’s best to shop around for business loans so that you can find one that offers the best interest rate and terms.

  • Inflation

Another factor that can impact the interest rate on a business loan is inflation. If inflation rises, loan interest rates tend to go up as well. This isn’t true in all cases, though. There may be instances where interest rates stay the same or go down despite rising inflation rates.

  • Loan term length

The time frame over which you can repay the loan is important, regardless of whether you need it for working capital, to boost cash flow, or for something longer-term. Generally, you’ll end up paying more interest the longer the term and the larger the amount borrowed. Consider a short-term loan first, and if you need more money later, you can apply for another lending facility. However, borrowing over a shorter time will increase each payment amount, so you should calculate what you can afford to repay on a monthly basis.

  • Loan flexibility

    • Loan Purpose: Some lenders are more rigid in approving loans for certain uses. For example, trade finance couldn’t be used to pay staff costs. Consider the reason for taking out a loan when reviewing the loan options available.
    • Credit: There are credit options available that allow borrowers to take out money when needed (a line of credit) rather than one large lump sum. Your financial needs could dictate the right product option for your business.
    • Repayment schedule: A more flexible repayment schedule may be beneficial to the business that allows you to repay more or less money each month, depending on your company performance, which could be hugely helpful compared to a fixed repayment schedule that some lenders offer.
  • Speed

There are lenders in the market who can provide cash within 24 hours as long as you have provided all the necessary papers. When comparing business loans, you should ask how long before the loaned amount will arrive in your bank account.

The type of lender, the type of business loan, the financial stability of your company, and your credit history are all variables that determine how quickly an application is approved.

  • Security

If you have property or other assets to give as collateral, you might expect to pay less than you would for an unsecured loan because the lender is taking a lot lower risk. Some lenders and banks might only be willing to provide you with certain types or quantities of financing if you can provide security.

The Bottom Line

The best business loan is usually the one with the lowest interest rate and the best terms. However, there are a lot of other factors that you should still consider like the qualifications of your company, the lender you choose, the annual revenue, and your existing debt.

All business loans are created to meet a particular need for a specific type of business. Therefore, before narrowing your options, you must consider your credit, your company’s financial situation, the number of years it has been in business, and the reason for the loan. Once you’ve done that, you should have a few—or several—options that you are eligible for.

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