Compare Business Loans

Learn how to compare business loans and the different types on the market.

Your guide to compare business loans

When comparing different business loans to find the best option for your situation, it pays to know what you’re talking about. What types of business loan are there on the Australian market and what sets them apart? Find out how different business loans compare with this comprehensive guide.

How do I compare different business loans?

Often when comparing loans, people jump straight to the interest rate and don’t go much further. In reality, though, there’s a lot more to comparing business loans. The interest rate can even be misleading if you don’t account for factors like fees and different loan types.

What are some of the elements that you should be looking at when you compare one business loan to another?

  • Interest rates – The interest (shown as a percentage added to the loan total each year) is certainly a good place to start. A difference of a less than one percentage point can mean thousands of dollars difference in the cost of a loan over a number of years, so finding a low rate is important. However, you need to remember that different types of business loans – such as secured and unsecured loans – can often have quite different interest rates to account for things like risk levels. You need to compare apples with apples to acquire good information.
  • Fees – In addition to the interest, almost every lender charges fees on a loan. These could be initial set-up fees, regular ongoing fees for maintaining the account or occasional fees for things like late payments or making extra payments to reduce the loan amount. These can add up to quite a significant sum over time, so you need to factor those costs in as you compare loans to look for the most affordable option – keeping an eye out for lenders with low or no fees.
  • Interest type – Not every loan has the same type of interest. Some automatically come with a variable interest rate that changes over the course of the loan (allowing your business to take advantage of interest rates falling), while some might have an option of a fixed rate, which stays constant and allows for more effective budgeting. Some can even do a mix of both, allowing you some protection against rising interest rates and some benefit if they go down. It’s worth knowing, though, that many fixed-rate loans revert to variable rate after a set time.
  • Additional features – Other aspects of the loan can also change its value to your business, often without affecting the cost of the loan in any way. For example, a business loan that allows early repayments free of charge and has a redraw facility is very handy – it enables you to pay the loan off faster if you have the finances available, but also allows you to draw that surplus money back out again if you find yourself in a season of shortfall. That’s a very useful option to have.
  • Loan term – Different lenders will have different time frames when they want to be repaid by, which can change from loan to loan. A short-term loan will have higher repayments, but you’ll pay less overall, while the reverse is true for a long loan. Many lenders will give you a choice, allowing you to pick the best option for your situation. Short-term loans (like unsecured business loans) might have a term of only a few months, but it normally won’t be longer than one to three years. By contrast, a long-term secured loan can have a term of up ten years, or more in some cases.
  • Loan amount – Not every lender offers the same amount and some might not be willing to offer the amount you want. For example, a lender might potentially offer up to $300,000 (for an unsecured business loan) to one customer, but only $80,000 to another customer with a less established business and a lower credit rating. This might be a deal breaker, although if their other terms are particularly good that might leave you with a difficult choice. Conversely, a loan might be ruled out as an option for your business due to the minimum amount being too high.
  • Repayment flexibility – While many loans have monthly repayments, some lenders have more flexibility – many offer fortnightly or weekly repayments and some can even work with businesses that have sporadic or seasonal cash flow. This means you can pay in a way that works for your business, which can be pretty handy.

If you’re on the hunt for a business loan, why not start your search with Savvy? You can compare small unsecured business loans from top Australian lenders all on the same page, and find a loan that’s suited to your business.

What kinds of business loan are there and how do they compare?

We have plenty of choice when it comes to both lenders and types of loan in Australia, with a loan for almost every occasion, but that can make things a little confusing when comparing business loans to find the best choice. Realistically, you need to start by working out what type of loan is best suited to your business and situation. Once you’ve done that, you can start comparing specific loans and lenders for that type of loan – looking at fees, interest rates, features and the rest.

So, what are some of the types of business loan on offer and how are they different to each other?

  • Secured loans – These are business loans which include some kind of asset used as collateral for the loan. These can also include finance types such as business mortgages and chattel mortgages. Because the asset provides the lender with more security, these loans generally have significantly better rates compared to other business loan types (such as unsecured loans). However, you need to have a significant asset you’re willing to offer as collateral for these to be an option.
  • Unsecured loans – These are business loans that don’t have collateral or a deposit – you can include finance types like equipment finance in this category. They’ll generally come with higher interest rates, but the trade-off is they’re much easier to get approval for and don’t normally require any deposit or collateral.
  • Business credit – Business credit, although technically a kind of loan, works quite differently to more conventional loans. It includes things like lines of credit, business overdrafts, and business credit cards. It normally has quite a high interest rate, but the advantage of business credit is that you can withdraw and repay it whenever you need and only pay interest on the amount you’re using. You need to be careful, though, as overusing credit can impact your credit rating.
  • Specialised loans – There are also other types of more specialised loan product on the market, such as a merchant advance or invoice financing. These can have unusual types of collateral, or methods of making repayments, meaning they’re tricky to compare to conventional loans as the numbers work quite differently. Invoice finance, for example, is actually giving you money that someone else owes you, rather than borrowing money from a lender that you repay over time.

The type of loan suits your best will depend on your business and its needs. Once you’ve established what kind of loan is best for your situation, there’s nothing to stop you comparing your options. Just make sure you’re comparing like with like if you want useful answers.

What will help me get the best business loans in Australia?

Credit Rating

Your credit rating can have a big impact on what sort of terms a lender might offer you. Great credit can unlock some of the best rates on the market.

Business Track Record

How established your business is and how well it’s doing can make a difference to your loan rates – an established business is a safer bet for a lender. Keep good records to show if your business is doing well.

Security / Deposit

A secured loan always gets better rates than one with no collateral. Even a decent deposit can make some difference to a lender and potentially improve your loan offer. Banks like to know you’ve got something invested in this.

The Lender

In Australia, business lenders offer vary a great deal. With everything from big banks to small online lenders there’s a lot of variety in the market. It always pays to shop around and compare your options to find the best terms.

Frequently asked questions about comparing business loans

What's a comparison rate and how does it help me compare business loans?

A comparison rate is an interest rate figure that includes the more common fees and charges in its total. It’s a way to compare both interest and fees in the same number and gives you a better idea of what a loan will cost you. It doesn’t include every fee you’ll be charged, however – for example, it can’t account for how many early or late repayments you make.

Should I compare a loan offered to my business with a loan offered to another?

No. In Australia, the business loan rates you get offered will be affected by the specifics of your business, your credit rating (both yours and your business’), and the current state of your finances. That means you’re going to get different loan terms to any other business, so there’s little value in comparing those numbers – it’s like comparing house prices in totally different countries.

How does invoice financing compare to different types of loan?

Invoice finance is technically a type of secured loan, but you’re using outstanding invoices – money that other people owe your business – as the security. In practice, it works more like selling your invoices to a debt collector at a reduced rate. There are rates and fees in play, but as you don’t make repayments like you would with a regular loan (there’s just a one-off fee, which generally comes out of the money the lender pays to you), it’s quite different to conventional loans.

Can I compare a fixed interest business loan with a variable interest one?

The actual numbers work the same, so yes, you can. However, you need to remember that a variable interest rate will fluctuate over time. If you have two similar business loans with identical interest figures, but one is fixed and the other variable, they’re going to cost different amounts overall by the end of the loan. You can certainly compare them, but how they compare – and which is better – changes every month or so.

If I already have a business loan, and I find a better one, how hard is it to change loans?

Refinancing a loan is always a possibility, and you can potentially save a significant amount by doing so. The main thing to consider is what fees you’ll be charged in the process and whether you still come out ahead once those figures are accounted for.

What's a merchant cash advance and how does it compare to other loans?

A merchant cash advance is a specialised type of loan where a lender loans money to your business and takes an agreed percentage of your incoming profits (rather than a set value repayment) until the loan is paid off. The way they work is different enough that they don’t technically count as a proper loan – they’re officially a “sale of future revenue” – and thus the normal government regulations around loans don’t apply. However, you can make predictions about your future revenue and get an approximate sense of what they might cost compared to something like an unsecured business loan.