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Business Finance Options for SMEs

business finance options

Small-to-medium businesses have a range of options when it comes to choosing business finance. Here’s a summary of the most common forms of business finance in Australia.

Bank term loans

This traditionally has been a common business finance option. With a bank term loan, potential borrowers need to complete a large amount of paperwork. Besides the loan application, financial statements and possibly a business plan are required. Being a secured loan (requiring collateral), the interest rate will be lower. With term loans, borrowers make scheduled repayments, such as fortnightly or monthly. 

The main drawbacks of a traditional bank loan are the time it takes to get approved, which can be up to two months, and the collateral required. Bank term loans are secured by residential or commercial property, and have terms of up to 30 years.

Business credit cards

Business credit cards are a popular small business finance option in Australia. Although the interest rates on business credit cards can be higher than other forms of finance, most offer an interest-free period (usually 55 days) on charges. So if the borrower pays off the amount within 55 days of the charge, they don’t pay any interest. When applying for a business credit card, the lender will want basic details such as income and length of time in business. 

Business owners often use personal credit cards for business finances. This can be a simpler form of business finance if it’s not possible to get a business credit card. However, it’s a good idea to keep your business and personal finances separate, so this option can bring some challenges.

Business credit cards often come with perks including points that can be used for flights and other purchases, discounts and insurance. However, cards with more features and rewards have higher fees.

Learn more about business credit cards.

Business line of credit

A business line of credit is similar to an overdraft in that borrowers can use funds up to a predetermined limit. With a business line of credit, the borrower gets approved to borrow an agreed amount but only pay interest on what they use from the line of credit (plus establishment and ongoing fees). This gives borrowers the flexibility to use the money only when they need it and how they repay, as there are no minimum repayments (but the term of the line of credit might be limited). Business lines of credit usually start at a $50,000 minimum limit, so if businesses are looking to borrow a smaller amount, a business line of credit won’t be the right business finance option. 

As with business overdrafts, business lines of credit are available in secured and unsecured versions, with higher interest rates when unsecured. Some lines of credit have limited terms, such as three years. So the borrower will need a plan to repay their outstanding balance. Others are ongoing, but lenders will review the financial position of the borrower to ensure they still qualify for the line of credit. 

Learn more about business lines of credit.

Invoice finance

This is for businesses that invoice other businesses for goods or services provided. When a business can’t wait to receive money when customers pay their invoices, they can work with an invoice finance company to receive the funds sooner. Basically, the business ‘sells’ invoices to an invoice finance company. The lender pays the business a percentage of the total invoice value (80% to 95%) immediately and charges an advance fee (usually between 2% and 5%) of the invoice amount. When the customer pays the invoice, the business gets the remaining funds, minus any fees and charges.

Learn more about invoice finance.

Equipment finance

Equipment finance is a specialised form of lending to purchase machinery and equipment. There are various forms of equipment finance, including asset lease and commercial chattel mortgage. With an asset lease, the lender purchases the asset and the business is able to use it while making regular payments during the term of the lease. With a commercial chattel mortgage, the business owns the asset immediately and the equipment or machinery is used as security for the finance. The borrower makes regular repayments over the term of the loan – usually three to five years.

Learn more about equipment finance.

Commercial loan

A commercial loan is a large, long-term loan that can be used for a number of purposes, including buying equipment, hiring staff or purchasing commercial property. These loans are typically large (more than $250,000), have terms from 5 to 30 years, and can be secured by business assets, or residential, commercial or rural property. 

Learn more about commercial loans.

Online unsecured business loans

These types of business loans are growing in popularity in Australia due to the ease and speed of getting them. Fintech lenders such as Moula specialise in helping small-to-medium businesses get the finance they need without having to go through a complicated lending process. 

When applying for an unsecured online business loan, the borrower’s bank or accounting data, credit report, and other information are safely and securely analysed to make a lending decision. Compared to many other types of business finance, the process is quick and straightforward.  

If you are a mortgage broker considering diversifying into business finance, check out How Do Residential Mortgage Lending and Business Lending Differ?

SMEs in Australia

Small-to-medium businesses account for more than 99 per cent of all businesses in Australia. One of the biggest challenges for these businesses is getting finance. Learn more in What Is an SME in Australia?


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

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