At some point in a business owner’s journey, having additional working capital could have a significant impact. Whether the goal is to expand the business by hiring more staff, meeting payroll expenses, or capitalizing on new opportunities, having access to funds when required is crucial. It’s vital to have knowledge about small business loans in Australia, even if one isn’t planning on borrowing at present, to be prepared when the need arises.
What is a Small Business Loan?
Small business loans in Australia are a form of financing specifically designed for small business proprietors. They furnish financial assistance that is to be paid back with interest over a period of time. There are various types of small business loans in Australia available, each with distinct features and benefits.
Types of Small Business Loans in Australia:
Small Business Lines of Credit: A line of credit for small businesses functions similarly to a credit card, permitting you to borrow a predetermined amount and only what you need. This option can be cost-effective because you’re only charged interest on the borrowed amount. As it’s a revolving line of credit, this loan enables you to withdraw funds frequently as long as you don’t surpass the credit limit. It’s a practical solution to borrow smaller sums of money over the course of the year, making it perfect for financing seasonal costs or financing your promotional initiatives during holidays.
Small Business Term Loans: Small business loans in Australia typically provide a lump sum of money that is paid back over a set period through regular payments. These loans usually have a fixed interest rate and a repayment period of approximately five years, but the loan terms can vary. Similar to car loans or mortgages, the loans are amortized, meaning each payment covers a portion of the interest and principal. Small business loans in Australia are commonly utilized to make investments, such as acquiring equipment, purchasing a franchise, or expanding into a new location.
Invoice Factoring/Invoice Financing: Invoice factoring, also known as accounts receivable financing, enables you to receive immediate cash based on your outstanding invoices. Essentially, you sell your unpaid invoices to a lender in exchange for an upfront payment, which is typically a percentage of the invoice value. Depending on the agreement, you may either retain ownership of the invoices and use them as collateral to secure an advance.
Working Capital Loans: Working capital loans are usually utilized to cover the daily expenses of running a business such as payroll, rent, and debt payments, in contrast to many small business loans in Australia that are designed to fund long-term investments. These loans often have shorter repayment terms and are granted for smaller amounts. Additionally, they may be connected to your personal loan, meaning that a failure to make timely payments could negatively impact your credit score.
Small Business Credit Cards: A business credit card, while similar to a personal credit card, may offer extra benefits. One such benefit is the ability to obtain supplementary cards for employees with predetermined spending limits. Additionally, business credit cards commonly come equipped with reporting capabilities. Enabling you to monitor and classify your expenses, and may include specialized rewards programs for typical business expenditures.