Capify
  • Products
    • Unsecured Business Loans
    • Secured Business Loans
    • Merchant Cash Advance
  • Brokers
  • Partners
  • About
    • About Us
    • Careers
    • Contact Us
  • Resources
    • Blog
    • FAQs
    • Loan Calculator
  • Products
    • Unsecured Business Loans
    • Secured Business Loans
    • Merchant Cash Advance
  • Brokers
  • Partners
  • About
    • About Us
    • Careers
    • Contact Us
  • Resources
    • Blog
    • FAQs
    • Loan Calculator

1300 760 930

Get Started
  • Products
    • Unsecured Business Loans
    • Merchant Cash Advance
  • Brokers
  • Partners
  • About
    • About us
    • Careers
    • Contact Us
  • Resources
    • Blog
    • FAQs
    • Small Business Loan calculator
  • User Login
Menu
  • Products
    • Unsecured Business Loans
    • Merchant Cash Advance
  • Brokers
  • Partners
  • About
    • About us
    • Careers
    • Contact Us
  • Resources
    • Blog
    • FAQs
    • Small Business Loan calculator
  • User Login
User Login

Home » Featured » A simple guide to Business loans and Finance

How to guide - types of loans
  • Featured, Money & Finance

A simple guide to Business loans and Finance

  • July 29, 2022

Sometimes, your company needs a little extra help from a lender to cover its expenses. Let’s run through some of the most common types of business loans, from overdrafts to microloans.

 

With inflation and an economic downturn on the horizon, it’s the perfect time for businesses to look for ways to boost their cash flow and ensure they can stay afloat in a challenging environment. One of the best ways to do this is through financing. Yet there are many different types of business loans, so it’s important to know what you’re signing up for. 

According to Capify’s Q1 2022 Confidence Survey*, a growing number of business owners are being kept awake at night by worries over cashflow. 

working capital for small business

Depending on what you want to use a loan for, how quickly you need the money, and a range of other factors,  your choice may be different — but no matter what, there should be something on the market for you. We’ll run through the main kinds to be aware of. 

Table of Contents

Secured vs Unsecured Business Loans

Before we get too deep into the most popular types of business loans, let’s look at a few underlying categories and distinctions, starting with secured vs unsecured loans.

 

Secured loans require you to put down some kind of collateral, such as your equipment or a property. This improves your creditworthiness in the eyes of lenders because they know they can claim your assets if you miss your payments, lowering their risk. For this reason, interest rates tend to be lower on secured loans, and you may also be able to borrow larger sums of money for longer terms. 

 

An equipment loan is a common type of secured loan for businesses, which involves a lender funding an equipment purchase but using the asset as collateral. 

 

When you take out an unsecured loan, you don’t need to put down collateral. They tend to come with higher interest rates and aren’t as suitable for borrowing a large amount or a long loan term. However, this isn’t such a big issue if you have a strong history and want a more conservative loan, and you also have the perk of knowing you’re not putting your assets on the line. Plus, they often come with faster approval — good if you need your funds swiftly. 

 

Here’s a quick overview of how the two loan types compare.

 

Features

  • Require collateral?
  • Interest Rates
  • Loan approval
  • Loan value
  • Loan terms

Secured Loans

  • Yes
  • Typically lower ( up to 15% or below)
  • Typically slower (up to 4 weeks)
  • Can be high (sometimes millions)
  • Can be longer (up to 30 years)

Unsecured Loans

  • No
  • Typically higher (up to 30%)
  • Typically faster (up to one day)
  • Typically lower (up to $500,000)
  • Typically lower (up to 2 years)

Revolving loans (Line of Credit) vs instalment loans

Practically all loans are either revolving loans or instalment loans, but there are a few types of both kinds. 

 

Instalment loans are what most people think of when it comes to loans. You apply to borrow a fixed amount for a specific loan term and interest rate, then pay it back via monthly payments — meaning you know in advance exactly what you’ll be paying and for how long. 

 

Meanwhile, Revolving loans give you access to a fixed credit limit. You can take out however much (or little) you need at any given moment, and when you repay it, the original credit limit will be replenished by the same amount. Lines of credit and credit cards both fall under this category, and their chief advantage is flexibility. 

Long-term vs short-term

Another important qualification is whether you want to take out a loan over the short term or long term. Some businesses take out loans lasting multiple decades, while others are designed to be paid off within a few months.  

 

Other than the timeframe, both loans work similarly, but many lenders accept borrowing applications and release funds for short-term business loans more quickly. 

Specialised loan types

In addition to the categories above, there are a few different types of business loans to be aware of. 

1. Merchant Cash Advance

A Merchant Cash Advance aims to solve the same problem as invoice financing, but goes about it in a slightly different way. Rather than using your invoices as collateral, a lender gives you an upfront sum of money, then takes a portion of future business transactions as repayments.  

 

They may withhold a percentage of sales or take a fixed amount of money each day or week.  

2. Overdraft

Just as individuals can have overdrafts on their bank accounts to take out more than they have deposited, businesses can do the same.

 

Business overdrafts can be either secured or unsecured, and they work similarly to revolving lines of credit in the sense that you’ll have flexibility regarding how much you borrow.  

 

However, since an Overdraft is connected to your bank account, any money that comes in will automatically be used to replenish it. This can be a convenient way to take out a loan, but it won’t work for every business. 

3. Invoice finance

One of the biggest problems many businesses face is cash flow, and it’s tough to have a steady flow of money when you don’t know when customers will pay their invoices. That’s where invoice financing comes in — it solves this problem by giving businesses the money they’re owed upfront. In other words, unpaid invoices are used as a kind of collateral. 

  

Note that this is different from income factoring, which involves selling your invoices to another company, which collects the money on your behalf. While this is a valid option, it’s not a line. 

4. Microloan

Microloans are technically just an instalment loan, with the only difference being that they’re exclusively for small amounts. They tend to be offered by nonprofit or socially-focused lenders and are often given to businesses with social aims. 

 

However, they can also be given to other entrepreneurs struggling to cover expenses.

5. Buy now, pay later

Buy now, pay later services have boomed among consumers looking to finance large purchases in a more manageable way, but they’re also available for businesses. They merge revolving and instalment loans together since you borrow up to a certain amount then pay the money back in instalments. 

 

The best part is that they usually feature zero or low interest rates (although there are fees). 

6. Business credit card

Credit cards may get a bad reputation in certain circles, but they can be a great choice in specific situations. You can take a card out in advance without having a specific use in mind, and then use it flexibly when you need to make a purchase. In some cases, you may even get a 0% interest period for a few months when you first get a credit card, which is a great way to manage cash flow if you plan on buying a high-value item. 

 

However, you’ll need to pay careful attention to your finances because the interest rates tend to be higher than other loan types — sometimes up to 30%. 

7. Hire loan

A hire loan is a type of loan with a very specific purpose: To buy equipment or vehicles through installments over time (typically, between two and five years). After you’ve completed all the payments, the item you were “hiring” then belongs to you. 

 

This can be a convenient way to obtain an expensive item, and the fixed monthly payments make it easier to manage your finances. However, interest rates may be higher than those for a small business loan. 

8. Personal loan

In some cases, you may want to take out a personal loan and using it for your business. This isn’t generally recommended since mixing personal and business finances can lead to trouble, and the loan amounts tend to be lower than you’d receive from a business loan. 

 

However, as a last resort, it may be worth considering due to the relatively easy approval. 

In the end the choice is yours...

The sheer number of available options can seem overwhelming, but if you look a little closer at what each loan type offers, you’ll realise that most are only suitable for specific purposes or types of business. So, have a hard think about your unique situation before you make any applications.

 

According to Capify’s Q1 2022 Confidence Survey*, the main things that businesses look for when choosing a business loan provider is ease of application and speed of the outcome.  

Capify’s Q1 2022 Confidence Survey

If you’re finding it tough to get accepted by mainstream loan providers, you may want to look into alternative lenders as well as different loan types of business loans.

At Capify, we specialise in helping small businesses to access funding, including Merchant Cash Advances and Unsecured Business Loans. If you’d like to find out more, fill in our form. Or, if you’d prefer to talk to a member of our team, we’d be happy to guide you through the process. Give us a call today at 1300 760 930

**For more details about Capify’s Q1 2022 Confidence Survey, check out the document here.

 

Considering finance but unsure where to start? Give our team a call on 1300 760 930 or click Get Started. We’re here to talk through your needs and help you access funds in as little as 24 hours.

SHARE THIS POST

Categories

Small Business
Money & Finance
Productivity
Mindset

Recent Posts

EOFY 2025: 5 Last-Minute Tips for Small Businesses

Federal Budget 2025–26: What Australian Small Businesses Need to Know

Capify Appoints Sam Colclough as Head of Technology to Accelerate Growth in the UK & AU Markets

Related Blogs

Previous
Next
Products
  • Small Business Loans
  • Unsecured Business Loans
  • Secured Business Loans
  • Merchant Cash Advance
Partner with Us
  • Partners
  • Brokers
About
  • About Us
  • Careers
  • Contact Us
  • User Login
  • Complaints
Resources
  • Blog
  • FAQs
  • Loan Calculator
  • Privacy Policy
  • Terms of use
Capify Australia
Facebook-f Instagram Linkedin-in Youtube

Copyright © 2025 Capify is a trademark licensed to Ausvance Capital II Pty Limited (ABN 91 630 468 156). All Rights Reserved.