Business Loan Types: A Complete Australian Guide

Key takeaways

• Security, not the loan's name, is what drives the rate.
• Match the facility to the need: a term loan for an asset, a revolving facility for cash-flow gaps.
• Unsecured lending settles in days but can cost several times a secured rate.
• Directors' guarantees are near-universal outside the largest facilities.

The main options

Matching the facility to the problem

The most common and expensive mistake is using the wrong shape of finance. Funding a long-term asset with a short-term facility creates a repayment cliff; funding recurring cash-flow gaps with successive term loans stacks fixed repayments that do not flex when revenue dips.

• Buying something that lasts years - a term loan or equipment finance over a similar period.
• Bridging a gap between paying suppliers and being paid - a revolving facility or invoice finance.
• Funding growth in stock or wages ahead of revenue - working capital, sized against the cash conversion cycle.

What lenders look at

• Serviceability from cash flow - usually EBITDA against total debt service, with a buffer.
• Trading history - two years of financials is the mainstream benchmark; less is possible on low doc terms.
• ATO position. An unmanaged tax debt is one of the fastest routes to a decline; a documented payment plan is treated far more sympathetically.
• Security available, and whether directors will guarantee.

Frequently asked questions

How much can a business borrow?

Secured lending is typically sized against the security - commonly up to 70% of commercial property value - and then tested against cash flow. Unsecured lending is usually capped as a multiple of monthly turnover, often one to three months.

Do I have to give a personal guarantee?

For most small and medium business lending, yes. It is worth understanding exactly what you are signing: a guarantee makes you personally liable if the business cannot pay.

Does an ATO debt stop me borrowing?

Not automatically. An unmanaged debt is a serious obstacle, but many non-bank lenders will lend where there is a formal payment arrangement in place and it is being met.

Related reading

• Chattel Mortgage vs Hire Purchase vs Lease: Which and Why
• Equipment Finance Explained: Funding Assets Without Draining Cash
• Truck Finance in Australia: A Complete Guide for Owner-Drivers

Sources

• Business finance and funding options — business.gov.au
• Payment plans for tax debt — Australian Taxation Office