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Jun 2015

The Pros and Cons of Small Business Loans

June 20, 2015
Capify Australia

Fixed overhead costs can be stressful for small business owners, but knowing that they have options for their business’ financial security can give them some peace of mind.

In most countries, small business loans have become a top product for relationship marketing. This is where banks build their names through the business within their communities; likewise, the interaction with the direct client is more personalized and engaging.

However, filing for a small business loan is easier said than done. It would require a lot of consideration as there are advantages and disadvantages. Knowing exactly what you are venturing into will answer the question, “Is it really the right time for a business loan?”


1. You have a handful of options

Small business loans come in many names and forms. A capital loan helps the business support its monthly or cyclical capital costs while a line of credit from your bank tops up your working capital for inventory and equipment. It is always best to visit multiple companies, talk to their lending officers and compare options based on the terms and loan security options.

Do not limit your options to banks alone. There are financial institutions such as AUSvance that offer small business loans from $5,000.00 to $5,000,000.00.

2. Lower interest rates, flexible payment terms

Payment term options are also flexible especially for secured loans. Most banks would offer a “no maximum loan” with up to 25 years payment option but that entails a higher interest rate.

Secured loans with a specific loan cap can offer as low as 5.85% interest on variable interest loan offerings.

3. Fast approval and availability of funds

Lenders make it easier for borrowers to have an idea of their loanable amount with just a few clicks. Providing details such as purpose of the loan (i.e. inventory, equipment, operational), type of business (seasonal businesses such as a swimwear shop may be given a lower grant compared to a bakeshop), loan security (with or without a collateral) and bank account details, can provide you an estimated loan amount sooner than later.

Loan approval can come as fast as 24 hours to 2 weeks, so it is easier for a borrower to move on and try with other lenders should his business credit rating not satisfy the first one.

4. Tax deductions

Government taxation offices are very transparent in informing the business owners that their assessable income can be reduced by knowing exactly what their tax deductions are. Loans are not income, but the actual loan proceeds – which become a part of the working capital – usually become part of taxable income by default. Thus, it should be properly documented and declared for tax deductions in the future.



1. Most banks favor secured loans

Not all small business owners and start-ups have the means to buy and maintain real estate properties. This means they will not be eligible for small business loans especially those that are offered by banks which are most of the time secured.

On the other hand, it is still possible to explore options for non-secured loans but the loanable amount is normally limited or payable on a shorter term.

2. Preference is given to existing and running businesses

Many lenders prefer current customers and existing and running businesses, making it difficult for new customers to obtain a loan. Lenders may favor the rather current clientele more to gauge credit history and profitability before granting a loan.

3. There is a big gap to be filled

There is commercial lending, but small business lending is an entirely different scenario. According to the World Bank, there is a great need to strengthen the institutional environment so SMEs can have a better financial access through banks.

The major hurdle in successful small business loans from a bank are the latter’s very strict requirements, such as flawless credit score, hard assets, tax statements with a minimum of 2-5 years and complicated paperwork.

Thus, financial institutions such as AUSvance, which offer hassle-free loan pre-qualification online, have become the most suitable alternative for borrowers.

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