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How to Get a Business Loan – Answers to Frequently Asked Questions

Woman at computer thinking about how to get a business loan.

If you've never considered how to get a business loan, you probably aren’t familiar with the process or what’s required. If you are inexperienced when it comes to business loans, here we answer some of the basic questions that are asked regularly about how to get a business loan.

How can I get a business loan?

This is a very broad question. The best way to begin is to look at your reasons for getting a business loan, the amount you need and if you can afford to repay it. The first questions a potential lender will ask are ‘What do you need the money for?’ and ‘How much money do you need?’ Once you have answered these questions, you can approach potential lenders.

A wide range of business loans is available and the right one for you will depend on your circumstances. For example, if you don’t have assets to pledge as collateral, you will need to get a business loan that is unsecured. If you have collateral (residential or commercial property or business assets), you will be able to get a business loan that is secured. The difference between the two types of loans is that you can borrow more for a lower interest rate when your loan is secured.

The type of loan can depend on what you plan to use the money for. Equipment finance and hire purchase, for example, are specialised types of business finance used to purchase equipment. If you are seeking short-term funding for cash flow, a business overdraft, line of credit or an unsecured business loan could be the right loan for your needs.

Which bank is best to get a business loan from?

Many banks offer a range of business loans, so it’s impossible to say which bank is best for a business loan. For a traditional bank loan, the bank will require you to complete a large amount of paperwork. For a new business, the bank will also require a business plan, including profit and loss projections. Even though banks differ somewhat in their approaches, they tend to offer the same range of financial products. These include short-term and long-term loans, loans with fixed rates and variable rates, secured and unsecured business loans, business overdrafts, lines of credit, credit cards and equipment finance.

Besides the banks, there are many non-bank lenders that specialise in small business loans. They offer a wide range of finance options to meet the needs of businesses in various financial situations.

Fintech (financial technology) lenders are non-bank lenders that leverage technology to make it easier when applying for a business loan. Using leading-edge technology makes it possible for you to quickly and safely apply for a business loan online. With Moula, for example, you can complete the application within 10 minutes. In addition, your recent bank transactions are safely and securely analysed online to determine if you are approved and how much you can borrow. Once approved, the funds are transferred to your bank account immediately.

Is it hard to get a business loan?

This will depend on your financial situation, how long you have been in business, whether you have collateral and the type of business finance you choose. For example, for a typical SME, it’s very hard to get a traditional bank loan. You have to submit a large amount of paperwork and often wait six to eight weeks for approval. In fact, a survey of small to medium enterprises showed that banks reject around 75% of their loan applications. This high rejection rate is the result of regulatory restrictions which limit the level of risk banks can take on.

Non-bank lenders, including fintechs such as Moula, are not constrained by banking regulations, so they are able to make more loans to small businesses. Since the loans they make are unsecured, the interest rates are higher than those of traditional bank loans. As noted, the innovative technology they use simplifies the lending process. Once it has been determined that you can repay the loan, and you are approved, the funds are transferred into your account. In this situation, it’s not hard to get business finance if you meet the criteria of the non-bank lender.

How can I get a business loan without collateral?

You can get a business loan without collateral. When you don’t pledge collateral it’s called an ‘unsecured’ loan. Even if you don’t have collateral, there are many loan options available. The main difference is that you usually won’t be able to borrow as much and you will pay a higher interest rate. For example, a typical rate for a secured business overdraft is around 8% per year, while the rate for an unsecured business overdraft is around 12%. That’s 50% more interest for the unsecured version of the same loan.

Certain types of loans don’t require existing collateral but use what you are purchasing as collateral. For example, with equipment finance, the item you are purchasing acts as the collateral while you are repaying the loan.

Non-bank lenders such as Moula provide unsecured loans, so don’t require collateral. They safely and securely analyse your finances and credit information online to determine if you are approved for a loan and the loan amount.

Can I get a business loan with no credit?

This depends on what you mean by ‘no credit’. If you don’t have a credit record at all, it can be challenging to get a business loan. The same is true if you have a bad credit history which can be a result of late payments, defaults and/or bankruptcy.

If you have no credit record, it’s recommended you start somewhere. This could be getting a personal credit card with a low limit and making sure that you make all the payments on time. This way you will build a positive credit record for when you want to take out larger personal or business loans.

If you have bad credit, it can be challenging to get business finance. Some non-bank lenders specialise in providing business loans to people with bad credit but will charge a higher interest rate due to the higher risk.

To get a clear picture of where you stand, you can get a copy of your credit report. Learn more in What is a credit score and rating?

Do you need money down (a deposit) for a business loan?

No. A secured loan will require some form of collateral (property or other assets) but no money from you. An unsecured loan does not require any collateral, so there’s no money down (deposit) to get a business loan. With banks tightening credit standards and some eliminating business loans that use residential property as collateral, more business owners have been turning to unsecured business loans.  These loans have shorter loan terms (usually up to 36 months), so can help to meet short-term cash flow needs of some business owners wondering how to get a business loan.

How do you qualify for a business loan?

This will depend on the lender. With bank term loans, for example, you will be required to complete a large amount of paperwork. Many traditional lenders will want some form of collateral, usually residential or commercial property. Online business lenders, such as Moula, safely and securely access your banking transactions and/or accounting records to make a lending decision. In addition to completing a short online application, we check your credit history to make a lending decision. In addition to using artificial intelligence and machine learning, Moula had a team of underwriters that analyse the financial performance of a business and make a lending decision.

How long does it take to get approved for a business loan?

This will depend on the type of lender as well. Some bank business loans can take up to eight weeks to be approved after completing a large amount of paperwork. Online lenders have streamlined the process to make it quick and simple. With Moula, for example, you will receive a lending decision within 24 hours of completing a short online application (which takes around 7 minutes) and providing access to banking or accounting data.

What is an unsecured business loan?

Some business loans require collateral, which can include property or other assets owned by the business or business owner. One example is business owners who use their residential property to secure business finance. An unsecured business loan does not require collateral. However, many lenders will require a personal guarantee from the borrower. This means their personal property can be used to repay the loan if there is a default. Find out more about unsecured business loans.

Can I pay off my business loan early?

With most business loans, there is an option to pay off the loan early. With some lenders, you will pay the interest for the full term even if you pay the loan off early.  Other lenders will charge full interest minus a small discount when the loan is paid off early. With Moula business loans, you only pay the interest for the time you borrowed the funds. So if you pay it off early, you won’t pay interest on money you aren’t using. Be sure to read the fine print when considering business finance.

Is my business eligible to get business finance?

This will depend on a number of factors including your financial position, credit history and ability to make repayments. Business lenders will typically look at your cash flow, profit and loss statement and balance sheet. In addition, they will check your credit history to see what other debts you have and how reliable you have been in making payments. Some lenders will require collateral to get a business loan, while others offer unsecured business loans that don’t require collateral. Some lenders have minimum eligibility criteria before they will consider lending. With Moula, for example, the minimum requirements include having an active ABN or ACN with GST registration, being in business for more than six months, and having over $5,000 in average monthly sales.

If you’re interested in getting an estimate of loan repayments for a range of loan amounts, terms and interest rates, check out our business loan calculator.

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