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How to Compare Business Loans

compare business loans

With a wide range of business finance products available in Australia, it can be challenging to choose the right one for your needs. Let’s look at some of the points to consider when you compare business loans.

Purpose of the business loan

This is a big factor to consider when you compare business loans. For example, if you are planning to purchases a commercial property or purchase a business, a commercial loan will be appropriate. On the hand, if you’re seeking business lending to cover a working capital shortage, a short-term unsecured business loan could be the solution. There are also specialised types of business finance, such as equipment finance to purchase machinery and equipment. Given the importance of the loan purpose, you will want to have a very clear idea of what you are will be using the finance for before you compare business loans.

Loan term (duration)

This is another big factor when you looking for small business loans. For a large purchase, such as property or another business, you will want to have a long loan term. For example, a commercial loan for purchasing commercial business property or a business can go up to 25 years. If you want a loan to purchase inventory for a busy time of year, a loan term of six months will be sufficient. Some types of financial products don’t have a set term. These include business overdrafts and business lines of credit which are ongoing. Lenders offering these lending facilities might want to review your finances after a few years and they can withdraw these lending facilities if they think your financial position has deteriorated over time. Typical loan terms include: 

  • Online cash flow loan – short term – six months to three years
  • Bank term loan – medium term – two to five years
  • Commercial loan – long term – up to 25 years
  • Equipment loan – medium term – three to five years
  • Business line of credit – long term – ongoing.

Business loan interest rates

With a wide range of business loan interest rates, you can get confused about what’s best for you. Some long term bank term loans can be as low as 4.5% per annum. Other forms of short-term loans can be over 40% per annum. Although cheaper might sound better, it’s not always the case. For example, a retailer needing to stock up quickly for their business season could consider getting a term loan with a lower interest rate. However, this type of loan is can take up to eight weeks to get and has a longer term. Also, these loans usually require collateral, such as a residential property. An unsecured online loan will have a higher interest rate but the application process is quick and simple. Learn more in How to Compare Business Loan Interest Rates.

With Moula, for example, the application can be completed in under 10 minutes and an answer provided within 48 hours. Once approved, the borrower receives their funds within one business day. So in the retail example above, the term loan would not be right under the circumstances. In the end, you will want to look at the costs, benefits, lending criteria, and your objectives and financial situation. In any situation, you’ll want to be sure that there is a solid business case for taking on business finance. Use our Return on Investment Calculator to estimate your potential return on investment.

Fees and charges

These will vary depending on the loan. Some lenders charge establishment fees for a new loan. In other cases, you will be charged for paying off the business loan. In some cases, you will end up paying interest for the entire term, even if you pay off the loan early. Whatever you do, be sure to read and understand the terms and conditions, including the product disclosure statement if it applies to the type of finance you are considering.

Flexibility

This feature will depend on your financial circumstances. Many business loan products will require that you make scheduled payments. If you want flexibility, products such as business lines of credit, business overdrafts and business credit cards will be more appropriate. With some business loans, you can repay them early without paying the full interest of the loan term. With others, you will be charge all or part of the interest for the remainder of the term, even if you repay it early. Keep this in mind when you compare business loans. 

Credit history, financials and collateral

These factors will have an impact on what type of finance you can access, the amount and interest rate. If you have issues with your credit history, it might mean you can only access business finance with a high interest rate or might need to look at getting a personal loan to use for business purposes. Although this is not recommended, some business owners use this option to get business funding. 

Your financial position affects that type of business finance you can access. While you might not be able to access a large bank term loan, you could access unsecured finance for a lower amount. 

If you don’t have collateral for a loan, it will eliminate many of the options when you compare business loans. In this case, unsecured business loans could be an option.

Ease of applying

The financial services industry has a reputation for complexity when it comes to business borrowing. A large amount of paperwork needs to be completed for traditional business term loans. If you don’t have the time and resources to do this, these business finance options won’t be viable. More and more businesses are turning to online business lenders after they compare business loans.

SMART Box™ to quickly and easily compare business loans

SMART Box™ is a one-page disclosure document that compares online business loans. One part shows the basic elements of the loan option being considered, including the Loan Amount, Disbursement Amount, Total Repayment Amount, the expected Loan Term, and Repayment Frequency.

The second part of the document shows six common loan pricing metrics: Total Cost of Credit, Average Monthly Payment, Total Interest Payment (TIP), Annual Percentage Rate (APR), Cents on the Dollar, and Factor Rate. In addition, one section covers whether there are any new fees or a reduction in the Total Payment Amount if the loan is paid off early.

Besides assisting business owners, SMART Box™ is also used by business loan brokers to compare business loans for their clients. 

Learn more about SMART Box™ and how it can help you compare online business loans to choose the right one for your requirements.

Also, check out our business loan calculator to get an estimate of principal and interest repayments.

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Business content for Australian SMEs. Sharing guides, growth hacks, and expert tips on finance, sales and marketing, and tech.

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