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How to choose between an Unsecured Business Term Loan and Line of Credit

The market for small business funding solutions is growing fast. The main goal is to offer small business owners more flexible loan products that enable them to grow their business faster while also allowing them to adapt to the fluctuating economy. 

When it comes to small business funding, some of the most popular options therefore include Unsecured Business Term Loans or Business Line of Credit. Why? Because they usually offer the most flexible lending conditions. 

What exactly is an Unsecured Business Loan? 

An unsecured business loan allows business owners to get funding without the need for collateral. A secured loan, on the other hand, requires business owners to borrow against valuable assets such as property or vehicles. 

This is also one of the reasons why the online business loan application process for unsecured business funding is typically much faster and easier compared to the traditional applications for secured business finance. An online application for an unsecured business loan also requires little documentation and is therefore often referred to as “Low Doc”. To top it off, most applicants for unsecured business funding receive an outcome within 24 h and funding on the same business day, if all the requirements are met.

Now, what’s the main difference between an Unsecured Business Term Loan and Business Line of Credit? And how do you know which one is right for your business?

Let’s start by looking at the key differences between both business funding solutions that we offer here at Lumi. 

Business Term Loan Business Line of Credit 
Access to funds Once-off funds that you receive in full upon loan approval & settlement Ongoing funds that you can borrow as you need them upon funding approval
Purpose Larger business purchases, product development, cash flow management, refinancing existing debt Cash flow management, ongoing operating expenses, contingencies, smaller equipment purchases
Amount  $5,000 – $300,000

Up to $150,000 Unsecured 

$5,000 – $300,000

Up to $150,000 Unsecured 

Terms 3 – 36 months  12 month rolling facility 
Repayments Weekly repayments 

Option to pause your repayments interest-free for 4 weeks

with our Payment Pause feature, which is subject to

Terms and Conditions and Eligibility criteria.

Pay as you borrow. You only pay interest on the amount you borrow. 

You commence weekly repayments once funds are drawn.

Fees Establishment fee, interest on total loan amount  Establishment fee, drawdown fees, account fee, interest on amount borrowed 
Application  5 min online application

Up to $150,000 Low Doc 

5 min online application

Up to $150,000 Low Doc 

Requirements Valid ABN or ACN 

Min 6 months in business 

Min $5,000 monthly turnover

Valid ABN or ACN 

Min 6 months in business 

Min $5,000 monthly turnover

So, which one to choose for your business? Here are 3 steps that can help you decide what business funding solution could be best for your business. 

1. First check your eligibility

Once you’ve found your preferred online lender, check whether your business meets their eligibility criteria. Bear in mind that different lenders have different criteria. At Lumi, in order to apply for an Unsecured Business Term Loan or Business Line of Credit all you need are 3 things to get started:

  • A valid ABN/ACN
  • Min 6 months in business 
  • Min $5K monthly turnover

Note that meeting the above criteria does not guarantee funding approval. We decide applications on a case-by-case basis. 

2. Decide on the main purpose of the loan 

Do you need a lump sum payment to afford a big business purchase or new product development? In this case a Small Business Term Loan could potentially be a good solution for you. A term loan means that, upon application approval and loan settlement, you will receive payment of the full loan amount and start paying interest on the full amount also. 

Or, are you looking for ongoing access to funds that you can tap into depending on your ongoing needs? These needs could include things such as cash flow management, operating costs, payment of staff wages etc. Maybe you simply want to have access to an emergency fund in case of any unforeseen events? If that’s what you need, then a Business Line of Credit could be a valid option as it lets you borrow money as you need it. The advantage is that if your application gets approved, you will be able to draw down and withdraw funds as you need them. The best thing is that you will only pay interest on the amount you borrow, not the total amount you got approved for.

3. How much can you afford to borrow and repay?

It’s the chicken or egg type of question when it comes to getting business funding. In case you don’t know yet how much you can afford to borrow and repay, start with the amount you would like to borrow. Then either speak to a Lumi team member to understand what the requirements for this amount would be, or use our handy Loan Repayment Calculator. It will show you an estimate of your weekly repayments based on the chosen amount and term length.

At Lumi, we use a risk-based pricing approach that’s tailored to each of our customers depending on their risk profile and personal circumstances. This allows us to offer bespoke funding solutions rather than a one-size-fits-all approach. We therefore recommend that you speak with a specialist from our team who can give you the most accurate information on how much a certain loan amount would cost you, including all the fees and what your repayment schedule would look like. They will also be best positioned to recommend whether a Small Business Term Loan or Business Line of Credit would be best for your business. 

Reach out to our team via phone on 1300 00 5864 or email us at support@lumi.com.au. If you’re ready to apply for small business funding now, complete our easy 5 minute online business loan application

Your Lumi team

Post Author: Vanessa Muller

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