How To Find The Best Small Business Loans In 2024
Small businesses typically have to consider many things for a loan application, from credit history to the owner’s personal credit score and interest rates.
With so many loan options available, it can be overwhelming when you first start that process.
But you can access the best small business loans by knowing where to look. Knowing the financial requirements, limitations, and different loan lenders can help you get the best loans for your business.
This article will discuss how to get the best small business loans in 2024…
Tips For Finding The Best Small Business Loans In Australia
Getting the best small business loans doesn’t begin by clicking “apply.” Small business loans usually work best when you’re ready with all the information, documents, and business strategies that lenders may ask of you.
First, understand the requirements most lenders look for in the application process.
Familiarise Yourself With The Eligibility Requirements
Many things can affect whether you get a business loan. To boost your approval chances, it’s good to fix any concerns in your loan application.
Business loan providers often check the following factors:
- Annual business turnover: Loan providers assess how well your business operates. They may check your business credit, business expenses, and business revenue. They may also ask for a minimum annual turnover and financial statements to check if you can repay your loan on time.
- The purpose of the loan: Most loans request working capital for equipment financing or wages. Some lenders might work best in specific industries, so consider searching for ones that fit your needs.
- Length of operations: How long your business has been running also matters. Some business loan lenders have specific requirements, from six months to a few years.
- Existing business debt: Loan providers may check if you have any unpaid loans. This helps them check if you can afford additional debt and loan repayments.
- Credit score: Lenders may have minimum credit score requirements for prospective borrowers. Your business credit score should usually match your lender’s requirements.
These are the common documents that you will need to provide to secure a loan agreement.
- A valid ID to verify your identity
- Your business’s Australian Business Number (ABN)
- Financial documents like the following:
- Bank account statements
- Tax returns
- Credit scores
- Projected cash flow
- Apart from the business financials above, prepare a business plan detailing how you will use the loan.
Calculate A Realistic Loan Amount
Understanding business finance is important when you decide on the loan amount. Request an amount that you can afford to repay to maintain a good credit score.
Beyond setting a loan amount, another important factor to consider is interest rate and any other fees the lender might charge. This will help you understand the overall cost of the loan.
Check out our handy business loan calculator here, if you want to get an estimate of how much you could borrow with Lumi and how much it would approximately cost. Bear in mind these figures are only estimates. To get a more precise quote, feel free to reach out to our friendly team via email at sales@lumi.com.au.
Check The Interest Rate
Consider looking at the business loan interest rates on offer before finishing your business loan application. Take a rate that you can afford to pay interest on.
If you have collateral, you may want to consider getting a secured business loan for a lower interest rate. However, you may be offered a higher interest rate if you have bad credit.
Different types of loans may also have different interest rates. For example, a loan with collateral may charge a lower interest rate, while an unsecured loan may carry higher rates.
Be Wary Of Extra Costs
You may be able to make your small business loan repayments easier by checking your lender’s terms for potential hidden fees.
For example, your lender may charge early repayment fees if you repay the loan early. That said, the best small business loans will typically let you pay early, even before the loan term is up.
Some lenders may also be able to process your application within the same business day as you apply.
Compare Business Lenders
There are many lenders available that can offer you some of the best small business loans. These can range from online business lenders to lenders offering traditional business loans.
You may want to compare business loans from different lenders to ensure you get the best terms.
Look into different lenders, like a specialist online lender, alternative online lenders, and non-bank lenders. Know your business line of credit and credit limit to better compare small business loan options.
What Is A Small Business Loan?
A business loan lets a business borrow funds to buy assets or have more working capital. Lenders typically give businesses a fixed period to repay the loan and any interest or fees.
A traditional business loan can vary in duration. Short-term loans may go up to 12 months, while long-term loans can reach up to 10 years. The loan period usually depends on the lender and your current situation.
This can apply to both small business loans and loans for larger, more established businesses.
Some lenders usually need their borrowers to have a minimum credit score before approving a loan. At Lumi, we require small businesses to have a credit score of at least 400+.
Secured Loans vs. Unsecured Loans
When you apply for a small business loan, there are two main types to consider.
- Secured Loan – Secured business loans use collateral, like a business asset to guarantee the loan. If a business fails to repay the loan, the lender can seize the collateral.
- Unsecured Loan – Unsecured business loans don’t offer any security for the lender. While they may be processed faster, the interest rate is usually higher, and the borrowing amount tends to be lower.
Decide between a secured or unsecured business loan based on your needs and circumstances. Business finance can at times be unstable, so you may want to be careful in order to avoid bad credit.
What Are The Different Kinds Of Small Business Loans?
There are many types of small business loans that depend on the loan amount, duration, and the expenses the loan will cover.
These five types are among the most common loans you can get:
- Merchant Cash Advances – A merchant cash advance involves a lump sum payment based on your future credit or debit sales. Your future revenue secures the advance.
- Invoice Finance – This type uses invoices instead of collateral for a cash advance, making it faster to fund cash gaps.
- Business Overdraft – This lets you run a negative balance up to an approved amount and is usually found in unsecured business loans.
- Line of Credit – This option lets businesses borrow up to a certain amount and charges interest only on the borrowed money.
- Ongoing Credit Facilities – A pre-approved loan that allows you to borrow money over an extended period.
Other loan types might depend on the requirements of online lenders and banks.
Conclusion
Whether you own an established business or want to expand, you may want to consider a business loan.
Though high interest, long waiting periods, and multiple requirements may seem like a hassle, the best small business loans are usually easy to apply for and if used strategically they could help achieve your business goals.
Having long-term goals and a strategy to achieve them are great tools for success. Remember, though, that if the need arises, a business loan application might help you get the money you need to expand your business.
