How do I get a business loan in Australia?

A guide to getting the funds you need to boost your business.

Heidi Armstrong
Heidi Armstrong 27 May 2021 ・ 9 min read

Whether you’re an existing business owner or trying to finance a start-up, business loans and commercial property loans can give you the funds to kick-start or keep growing your venture.

As more Aussies opt to work for themselves or start their own ventures, the demand for business loans and commercial property loans is rising. Established businesses and start-ups alike often need funds for working capital, equipment, leases, acquisitions, advertising, company vehicles, and commercial property mortgages.

Nowadays, business owners have access to a variety of loan types to fit their specific needs. Whether you need a few thousand dollars, a few hundred thousand dollars or even a few million dollars, the right business or commercial loan can keep your business growing without disrupting your operations.

How do I get a business loan in Australia?

If you’re seeking a business loan in Australia, your first step is to find an experienced business finance broker. They will have access to a broad range of lenders and will know which ones have an appetite for your type of business. This can save you time and money, rather than trying to compare different lenders and their products on your own.

And it’s important to understand your terminology. Often, people interchange the terms “business loan” and “commercial loan”, however, there are some slight differences between them. When brokers talk about a commercial loan, they are usually referring to a mortgage on commercial real estate. Borrowers may seek a commercial mortgage for premises in which to run their business or from professional investors seeking commercial property to provide rental income and capital gain over time.

In contrast, business loans don’t always need commercial property security and can be used to cover the actual expenses of running a business. Owners may take out a business loan to cover employee wages, leases on offices or equipment, business overhead expenses, advertising, acquisitions, business vehicles, and all manner of other expenses.

Business owners may need a commercial property loan, a business loan, or both. When you work with a business finance broker, they can assess your situation and go over all your options with you.

What is an unsecured business loan?

An unsecured business loan is a loan that does not require real estate collateral for approval. An unsecured loan is made solely on the strength of the borrower’s credit and financial standing. With an unsecured loan, the risk to the lender is higher, because they can’t rely on an owned asset to make up for any losses if the borrower fails to repay. For this reason, interest rates on unsecured business loans tend to be higher.

Even if a borrower can get an unsecured business loan, they will still likely have to sign a personal guarantee. The personal guarantee allows the lender to pursue repayment from the borrower’s personal assets if there is a loan default. Unsecured business loans are usually for lower amounts and made to borrowers with a consistent earnings history and good cash flow.

What is a secured business loan?

A secured business loan or a commercial property loan uses collateral – usually in the form of residential or commercial real estate to back the loan. Secured business or commercial loans involve less risk to the lender because if the borrower doesn’t make repayments, the lender can rely on the security property. This means that secured business or commercial loans usually offer higher loan amounts and lower interest rates.

Many secured business loans have commercial real estate security. For example, if a doctor owns the building that the medical practice operates from, they might leverage the equity on the commercial property as security for a loan to update their medical equipment.

Some business owners have no need for an actual storefront or office location, or they rent or lease their commercial space. This does not necessarily mean they can’t get a business loan for operating expenses or growth opportunities. Some business owners put up their residential home as collateral for a secured business loan. Others don’t own any commercial or residential real estate but have strong enough business financials and liquid assets to get an unsecured loan with a personal guarantee.

What is a low doc business loan?

Low doc business loans are for qualifying business owners who don’t have all the documentation typically required to get a business loan. Many entrepreneurs and independent contractors need funds for start-up expenses. So, they don’t have several years of business tax returns or proof of consistent cash flow on Business Activity Statements. But this doesn’t necessarily mean these types of applicants can’t get a business or commercial property loan.

Traditional banks and credit unions may be less willing to lend to low-doc applicants. However, there are plenty of specialty lenders who have the expertise and resources to assess a borrower’s financial strength using alternative means. When applying for a low doc business loan or a low doc commercial loan the lender will likely require real estate as security. Because low doc loans are a higher risk to the lender, they will want to ensure they have sufficient security to recover any losses if the borrower is unable to meet future loan repayments.

If you need a business loan for a start-up, it always helps if you have a strong and lengthy earnings history of working somewhere else in the same field. If you already own a business and need a loan for working capital or an acquisition, you may still be eligible, even if you don’t have recent tax returns.

Lenders specialising in business loans understand that owners have unique tax considerations. Their income may not be as easy to verify as someone who gets regular payslips. As long as your Business Activity Statements and personal bank accounts show strong cash flow and no major credit issues, you may be able to get a business loan without the traditional documentation.

Can I get a business loan to buy a car?

Yes, you can get a business loan to buy a car. More and more modern businesses offer home delivery or involve services that require employees to travel as part of their job. Business car loans allow business owners to finance work vehicles under the umbrella of the business. This spares them the potential credit and personal liability risk of taking out a business car loan in their own name. Business loans for work vehicles can also be advantageous for tax purposes, since depreciation, loan interest, and insurance premium deductions can offset tax liability.

Can I get a commercial loan with my SMSF?

If you have a self-managed super fund, you may be able to use it to take out a mortgage on commercial property. Some SMSF members buy residential or commercial properties to help diversify their investment portfolio. Buying residential or commercial real estate with SMSF funds allows members to collect rental income, build equity, and capture capital gains if they sell the property. If you’re not buying a home for you or a family member to live in, you can use your SMSF to take out a mortgage the usual way.

For commercial property purchased with an SMSF, buyers are generally also allowed to use the property – provided it’s being used exclusively for business purposes. Whether held personally or in an SMSF, mortgages on commercial property tend to have slightly higher interest rates than those on residential property. And while the mortgage’s term is usually shorter, some lenders will go up to 30 years.

Can I get a business loan if I have bad credit?

You can still get a business loan if you have bad credit. However, these borrowers will usually be subject to higher interest rates and will need collateral to secure the loan. Unsecured business loans are hard to get unless you have an above-average credit history. If you’re seeking a business loan and your credit score is on the low side, you’ll need to present a good case to your lender.

There are specialty lenders who may still approve you if you can show that your financial situation has improved, and you can service the loan. You’ll want to show a solid record of consistent business revenue, or if you’re starting your own business, a similarly solid history of earnings in the same industry.

The bottom line is that you want to show the lender that you’re a risk worth taking and that repayment problems are unlikely to recur. Mainstream banks and credit unions are less likely to approve business loans to applicants with low credit scores. But a business finance broker will know which lenders may still consider you and tell you what documentation will help your chances.

How do I apply for a business loan?

Applying for a business loan doesn’t need to be daunting. A good starting point is to seek out the services of an experienced business finance broker. You want someone who understands what you’re trying to achieve and can identify lenders that have an appetite to back your situation.

A good business finance broker will guide you through the application process and help ensure your loan application is approved. Remember that each time you apply for credit, a notation is made on your credit file and this impacts your credit score. For this reason, it’s important that whoever you decide to formally apply with has an appetite for your loan and circumstances.

A good business broker should be able to give examples of how they have helped other business customers in the past. Do your research online to find a broker that can help find a finance solution that suits you. Contact a Liberty Adviser to see how they can help you with a business loan or commercial loan today.

Heidi Armstrong
Heidi Armstrong Author
As Liberty’s Chief Free Thinker (AKA Chief Marketing Officer), Heidi Armstrong is passionate about educating and empowering consumers in money matters. From lawyer to broker, entrepreneur and consumer advocate, Heidi is an award-winning thought leader with a wealth of financial experience to share.