Business finance products come in many shapes and sizes. From commercial loans to equipment finance and lines of credit, Australian lenders offer a wide range of options.

To find the right fit for your business needs, here are some of the key points to consider when comparing business loans.

Why you want the loan

The purpose of the loan should be your primary consideration. Having a clear idea of what you will use the finance for will help to narrow down your options. For example, a short-term loan may be the better option for covering a capital or cash flow shortage while a commercial loan may be the most appropriate for a commercial property purchase.

Lenders also offer products catering to specific business needs such as machinery and equipment finance and chattel mortgages for cars and other vehicles.

Interest rates

Compared to residential mortgage rates, business loans can have a wide range of interest rates.

Typically, with short-term business loans, there will be a tradeoff between a better rate and convenience.

A bank term loan may have a lower interest rate, but it will often involve more paperwork, require collateral and take longer to get approved.

An unsecured loan from an online lender will have a higher rate, but the application is usually faster and easier to process.

The interest rate you can access will also be affected by your credit history, business financials and what collateral, if any, you have to offer.

Duration of the loan (term)

Different loan types will have different terms, which often reflect the amount of money you’ve borrowed. Typically, repayments for large amounts borrowed through a commercial loan will have the longest term – up to 25 years.

Equipment loans and bank loans will generally have medium terms ranging from two to five years. Short-term unsecured loans and online cash flow loans will typically need to be repaid between six months and two years.

Other finance products including overdraft facilities and business lines of credit don’t have set terms. Instead, the lender will likely want to review your business finances every few years and will have the option to withdraw the facility.

Payments and other fees

When you first take out a business loan, there may be an establishment fee. Then over the course of the loan, there could also be an annual fee.

If you repay your loan early, you may still have to pay the interest for the entire term. These charges will depend on the terms and conditions of your loan, so make sure to read the fine print.

Most business finance products will require regular payments over the term of the loan. If your circumstances require more flexibility with payments, then an ongoing line of credit, overdraft or credit card may be a more appropriate option.

To find out more about business loans, please get in touch. We’re here to help answer all your questions.