What is a business loan and how can you find the best business loan?
A business loan is any sum of money lent to a registered business (don’t worry, we’ll go deeper than this. We had to start somewhere). There are heaps of different types of business loans and each of them serves a different purpose. To work out the best business loan for your business, it’s best to identify exactly why you need a loan. While ‘general business expenses’ may be the reason, try to dig a little deeper and be more specific – lenders will ask.
What is the best business loan and how can you be sure?
The best business loan is the one that serves your business’s specific challenge and needs. And has the lowest business loan interest rates… and the lowest fees… and the list goes on, but for all intents and purposes, it needs to solve your business challenge. Here’s a list of 10 questions you should ask yourself before you commit to a loan.
Realistically, for most small-to-medium enterprises (SMEs), an unsecured loan is often the only option. The key to finding the best deal on a business loan is to understand all the ways lenders like to hide fees and charges and disguise the true interest rate you’re being charged. It’s important to understand the complete, real total cost of your loan before committing. We were fed up with the murkiness in the lending space, so we decided to change it. In fact, we’re so transparent, our favourite colour is clear. No kidding.
What are the different types of business loan?
Small business loans, like cereals, come in many different sizes, shapes and benefits. The trick is working out which one will help the health of your business the best. There are two broad categories of business loan:
- Secured business loans
A secured business loan uses an asset as security for a business loan. Because your asset offsets the risk of your loan, you can usually borrow larger sums at a lower interest rate. So if you default on your loan, the lender (usually a bank) can reclaim your asset to make up for the lost funds.
- Unsecured business loans
An unsecured business loan doesn’t require any assets as security, which makes them more accessible to more business owners – especially small and medium businesses – that may not have any valuable assets yet. Because there’s no asset to secure the loan, unsecured business loans have a higher interest rate and lower loan amounts. Although most loan amounts are based primarily on your business’s revenue as well as other factors such as your credit score and any Australian Taxation Office debt. But more on that down the page.
Within each of these categories, there is any number of specific business loans – cash flow, inventory funding, debt management, fixed-term, variable, line of credit, and the list goes on. It’s easiest to start with why you need the loan and then connect it with the best business loan for your needs.
So what’s the best business loan for you?
The best business loan for you is dictated by your business needs, whether you own valuable assets and how fast you need the funds. Think of the challenge you’re trying to solve and ensure the loan will help solve the problem within your deadline. Once you’re clear on why and when you need the loan, you can think about what loan is best. That means searching for the lowest interest rate, fewest fees (or, like Moula, fee-free), and the best term length for your loan. Usually, a secured loan will have the lowest interest rate because the bank has your asset as collateral in the event you default on your repayments. But, according to Digital Finance Analytics’ 2017 SME Survey, 66% of SME owners don’t own a property, which means an unsecured business loan is the best business loan option. The upside of unsecured business loans is they are usually quicker and easy to apply for – our application only takes 10 minutes and you’ll receive an answer in as little as 24 hours.
How many hoops do you need to jump through before you qualify?
With Moula, it takes just three steps – not really hoops – and one day to find out if your business qualifies for a loan. You will get an answer on your loan within 24 hours once you fill out our 10-minute application, link your banking data and designate a bank account to receive the funds. All lenders have a set of criteria for loan applicants. One of the core reasons bank loans take so long is because of the bureaucratic rigmarole required to qualify your business for a loan. Most lenders will only require your ABN, business revenue history or average monthly sales, banking data and a credit check. Others may ask for further information but if something doesn’t feel right, just ask why they need that specific information. If they’re anything like us, they won’t have any problems explaining why they need that information while you search for the best business loan.
What can you afford to borrow?
The best business loan is one you can afford to repay. Better still is a fee-free small business loan with reasonable interest rates that doesn’t penalise you for early repayments. It can be difficult to calculate the actual, real, honest, transparent cost of a loan. Fortunately, we’ve made it easy with our free business loan calculator.
Loan terms and rates – understanding the true cost
Interest rates are ironically named – they are dull but so important. When calculating the cost of a loan, it’s important to confirm how often interest is charged and how often you need to make repayments. Some lenders may advertise a loan as low as 0.8%. Sounds good, right? But 0.8% can be fantastic or fiendish, depending on how often it’s being calculated. For example, 0.8% fortnightly or monthly might be manageable. But 0.8% daily can quickly rack up enough debt to drive your business into the ground. That’s why it’s so important to understand how often interest is charged when seeking the best business loan. As a rule, the higher the frequency, the more expensive.
The term of your loan also plays an important part. Did you know the longer the loan the greater the chance of defaulting? The term of your loan will affect the total cost of your loan simply because your loan is charged interest more often. Importantly, the term of your loan needs to allow you enough time to earn the funds for the repayments.
In short? We’re fast. We’re transparent. And we’re super reliable. Transparency is one of our core values and you can see it in our application and approval process – you know exactly what’s going on with your application because we value your time and your business.
To save you time, we’ve streamlined our application process and moved it online. So all you need is an ABN or ACN, average monthly sales of $5,000 or more, and at least 6 months in business. You can apply for a business loan in just 10 minutes. And once we receive it, you’ll receive an answer about your business loan within 24 hours.
We believe in transparency so much, our favourite colour is clear. That means you know your interest rate, your fortnightly repayment amounts and the actual cost of your loan before you get started. And as for fees, we’ve never liked them, so we abolished them. No hidden fees, no charges for early repayments or debits, just the truth, clear as day.
We pride ourselves on our service and we’re proud to have a 9.8 /10 rating on Trustpilot. We back good business and we believe good business is built on relationships, so you can expect top quality customer service from our business lending specialists. Our Melbourne-based contact centre includes lending specialists, so they can approve your loans as well as answer your questions. We won’t transfer you around a call centre searching for answers. But we’ve done a lot of talking, read what our customers think here.
How does Moula work?
We’ve heard coffee orders more complex than our application process. Applying for a Moula business loan is as easy as a flat white. Apply in three simple steps:
- Tell us about yourself
Fill in some basic personal and business details.
- Securely link your data
So we can quickly calculate how much to lend then approve your loan.
- Get funds
Once approved, we transfer funds to your account in as little as 24 hours.
We custom built our processes to make it super easy to understand and super quick to complete. If you have any questions, contact us on 1300 885 893, or at email@example.com.
Learn more about small business loans from Moula.
What about fees?
What? Fees? What fees? We don’t believe in fees. So, to be as transparent as possible, we have removed all hidden fees and charges. In fact, the only situation that may result in a charge is if one of our scheduled repayments doesn’t go through. There are no fees for early repayment, direct debits, legal fees. No consulting fees and no fees hidden in your loan contract either.
Update: SMART Box Loan Comparison Tool to Help You Find the Best Business Loan
In early 2019, Moula and a handful of fintech business lenders introduced SMART Box™, a business loan comparison tool. When seeking a loan from one of the lenders using SMART Box™, you get a clear document that included key loan pricing metrics. Learn more in What is SMART Box™ and How Can It Help Business Owners?
Knowing all the fees and charges of business lending options will enable you to choose the best business loan.