Are you a small business owner looking for financing? In July 2019, Australian banks reported lending $284 billion to small businesses.
Before you make any appointments to visit brick-and-mortar banks, consider looking for online business loans or unsecured business lending.
An online business loan is a quick way to manage your businesses financial needs. If you need money quickly, you’ll enjoy flexible terms, fast application processing and speedy delivery of funds. Plus, you can quickly complete an application from the comfort of your office.
From crowdfunding to government grants, there are many routes to securing cash for your business, and business loans offer many benefits. Keep reading to understand online business loans further and learn how to select the best deal.
If you’ve ever taken out a personal loan, you’re familiar with the loan process. A business loan is similar in that you borrow an agreed-upon amount of money and pay it back to the lender, plus interest.
Business loans are either secured or unsecured.
A secured business loan is when you borrow funds against a company asset, such as property or stock. If you fail to pay back a secured loan, the lender can sell your assets to recoup their losses.
Unsecured business loans do not require you to put up an asset as security. However, some contracts will require you to provide a personal guarantee. Here, you will have to come up with the money if your business cannot pay back the loan.
Do your research before applying for a business loan, as some lenders will only loan funds to specific businesses. Their parameters might include small business owners or only companies that have a certain amount of turnover.
You’ll often find each lender’s loan criteria in the fine print, so read carefully when deciding which loan is right for your business.
When most people think of a “business loan,” they imagine a bank or credit union as the lender. However, new sources of funds include less traditional lenders such as peer-to-peer lenders, alternative lenders, and direct lenders.
The lender you will approach depends on several factors, including the amount of money you want to borrow, any business assets you can pledge, and the terms of the loan.
If you’re seeking money for a start-up or expansion, you may need to look at nontraditional sources like those mentioned above.
Big banks, credit unions, and other established financial institutions tend to serve large, well-established businesses. Their APRs, terms, and loan lengths differ, but most loans offered by Australia’s big banks are secured.
If you’re having trouble securing a loan through a traditional bank, you’re not alone. They have recently tightened their lending standards, leading most small business owners to search for funds through alternative channels.
If a traditional bank loan isn’t in the cards, look at alternative channels such as private investors, hedge funds, and private equity firms. Because there is less regulation on the loans offered by alternative lenders, they can provide more flexibility than commercial banks.
Alternative lenders are either direct or peer-to-peer lenders.
Direct lenders fund loans with capital without the involvement of an investment bank, a broker, or a private equity firm. Most often, small to midsize businesses deal with direct lenders.
Peer-to-peer lenders are typically investors with a loan portfolio that is diversified with small portions of loans. Any loan you receive is likely to be divided among many investors.
Alternative loans are a good option for borrows with less-than-stellar financial history, who otherwise may not be able to secure financing through another source.
Before you apply for any online business loans, you must understand the criteria lenders will review when underwriting your application. Don’t waste time applying for loans you may not qualify for—prepare yourself with this knowledge first.
The main criteria lenders review are:
In most cases, any person who owns over 20% of the business will be subject to a review of their personal credit history. If any of the principles have a low credit score, the loan may be declined. The credit history of the company will also be under review.
It’s vital that you are familiar with your personal credit report. Before applying for any business loans, get a copy of your credit report to confirm the accuracy of your payment history.
It’s possible that your credit report might contain errors. If you see any discrepancies in your credit history, contact the credit bureaus directly. They will require written documentation as proof, so have that ready as well.
Lenders will also review the ratio of credit to utilised debt. If you are using most or all of your available credit, most lenders will require extenuating circumstances to offer you a loan.
Lenders know that certain businesses and industries have common funding needs, but they may not be familiar with your business model. You need to know what you will do with the funds in case the lender asks for a specific purpose to increase their comfort level.
Lenders want to see that you will pay back the loan, so you will need to prove your income. To do so, you’ll need to produce income statements or show a record of your earnings for a specific period.
Loan approval often depends on proven, positive earnings history. The lender will do their analysis to determine your ability to pay your current personal and business debt and the additional obligation requested.
Besides your credit history and proof of income, the lender may require collateral to feel comfortable funding your businesses.
Their requirements will differ depending on the loan you’re seeking, the size of the loan, and how you will use the funds. While they can sell your assets if you default on the loan, they usually only require collateral as an abundance of caution.
There are several types of collateral lenders will accept, including:
Most lenders will look at the age of your business. The standard requirement is that your business has been operating for at least six months to one year. Some alternative lenders will offer unsecured start-up finance if your business is new.
If you’re considering invoice factoring or equipment loans, you may not have to worry about criteria related to business age. However, for business overdrafts or lines of credit, the lender will want you to have been in operation for at least one year.
You also must be familiar with the amount of turnover your business makes. This monthly or yearly revenue can range from $50,000 to $200,000. Some lenders may require connecting to your business’s accounting software to confirm these numbers as part of the application process.
Keep in mind that you must be an established business with an Australian Business Number (ABN) or Australian Company Number (ACN) before you qualify for any form of financing.
Now you’re armed with the knowledge of the online business loan process. Let’s look at some of the best business loans available online in 2020.
Capify’s application process only takes one minute, and they’re known for a fast application turnaround time. It can take as little as three business days to get approved and receive funds. They are one of Australia’s primary lenders.
To apply for small business lending through Capify, you must own a business that has been operating for at least six months and brings in a minimum of $10,000 a month in gross sales.
Capify’s costs are minimal, and they offer flexible loan repayment dates and a wide range of loan amounts ($5,000-$300,000). They present the repayment amount as one fixed sum, which is easier for you to digest but looks different from an APR. Keep this in mind when comparing rates from other lenders.
Borrower’s generally reported a positive experience with Capify’s funding process from start to finish.
The Merchant Cash Advance is an attractive option for businesses who accept sales at point-of-sale machines. Rather than a business loan, this is a cash advance that will help you match working capital requirements to your business’s sales.
Instead of agreeing on a daily or weekly fixed repayment amount, Capify deducts a percentage of each day’s revenue until you repay the advance, plus any fees. Very few lenders offer this option, and it’s a good deal for businesses who experience fluctuating sales.
This arrangement provides you with the flexibility to make lower repayments when business is slow, so you can better manage your business’s finances.
Capify requires little paperwork, and their cash advance is unsecured. Once approved for the advancement, they transfer the funds into your account in 24 hours.
We hope this guide to online business loans has helped you begin your journey to small business financing.
All businesses are as unique as individuals, so it’s essential to review all options with your business advisor. Make sure the structure and style of the loan match your business’s needs.
We were the first in Australia to offer small business owners with an alternative lending option. We’ve provided small business loans globally for other ten years, making us Australia’s most experienced small business lender.
Our vision is to tailor financial solutions for business owners with a customer-centric focus. We’ll work with you to create a flexible solution, streamline our internal processes, and pass those savings to you.
We can’t wait to hear from you!
Capify was born out of the desire to offer small businesses an alternative and accessible lending option. Proudly we were the first to do so in Australia. With 10+ years of local experience providing small business loans working capital globally, Capify is Australia’s most experienced alternative lender to small business.
With a focus on customer service and simplicity; our vision is to support Australian businesses with tailored financial solutions and solve small business finance. With our philosophy, we work together to create the most flexible and accessible commercial business loans for our clients. This allows us to streamline our internal processes passing on time and cost savings to you.