Self-Employed Business Loans

Name: Self-Employed Business Loans
Creator: Savvy
Published: 2022-01-20T10:07:56+10:30

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Written by , updated on July 26th, 2023

What are my self-employed business loan options?

Fortunately, there’s no shortage of options when it comes to accessing financing for your business. You should carefully consider what your business needs before plunging into the application process, as this will help you determine which finance type is best for you. You can choose from the following:

Unsecured business loan

The most common type of finance for businesses, unsecured business loans are highly accessible and boast quick approval and payment time of less than 24 hours. This loan sidesteps any requirement to put forward a valuable business or personal asset as collateral, such as equipment or property, making them more widely accessible to a greater number of businesses. These provide access to funds ranging from $5,000 to $500,0000, although these will differ between lenders. You can compare unsecured business loans with Savvy.

Secured business loan/equipment finance

If you do have an asset that you’d like to use as security for your loan, you can look to secured finance instead. This allows you to potentially access a borrowing range beyond $500,000 (provided your security covers that amount and you’re capable of repaying it), longer repayment terms in some cases and a lower interest rate. Alternatively, you can opt for equipment finance if you’re looking at purchasing a specific asset, which itself acts as collateral.

Line of credit

Many businesses look to lines of credit as a flexible way to access the funds they need. These can be either secured or unsecured and allow you to withdraw money up to an approved limit whenever you like. You’ll only pay interest on the amount you use, with revolving terms available to keep them open over longer terms than other loans.

Business overdraft facility

Overdraft facilities are similar to lines of credit but are attached to your business bank account and allow you to access cash beyond $0. However, they don’t come with set repayments, affording you more flexibility to repay the account at your own speed. Interest rates on overdrafts are often higher than those of unsecured business loans, however, as can be the case for lines of credit.

Invoice finance

Finally, if you’re a business which invoices clients, you can look at invoice finance as an option. This involves selling outstanding invoices to a financier and receiving up to 90% to 95% of the owed sum upfront, before having the rest advanced to you once your client pays your financier. You’ll have to pay a number of fees to do so, though, which may be substantial.

How do I get a self-employed business loan if I’m a sole trader?

While the business loan products available to sole traders are no different to those of any other business, what may differ is your ability to be approved in the first place. Generally speaking, sole traders generate less revenue than small businesses with more moving parts, with their lower cash generation capacity and simpler structures often leading to them being classed as higher risk. This can often result in higher interest rates and fees charged on loan products, which can potentially cost your business hundreds of dollars more overall.

Aside from this, though, the requirements are no different when applying for business finance, which is part of the reason why sole traders can find it difficult to get approved in the first place. Lenders will still have the same eligibility criteria in place, namely a required minimum monthly turnover of at least $5,000 and six months’ worth of trading. You’ll also be required to submit the same documents, namely the following:

Your ABN/ACN and GST registration
Business bank statements
Personal identification documents
Record of your business’ rent (if applicable)
Business financial statements for larger loans (such as a business plan, tax returns, profit and loss statements and accounts payable and receivable)

Types of business loan

Unsecured business loans

The most common type of business finance, unsecured loans enable businesses to access the funds they need without attaching an asset to the loan as security. Some lenders may allow you to borrow up to $500,000 and, because there's no collateral, offer same-day approval.

Secured business loans

If your business already owns valuable assets, such as property or expensive equipment, you may choose a secured business loan instead. These loans may increase your borrowing power beyond what an unsecured loan can offer and, crucially, typically come with lower interest rates.

Small business loans

Business loans don't always have to be worth hundreds of thousands. If you're operating a small business and need a boost to help you keep on top of your expenses or expand your company, you may be able to take out a loan starting from as little as $5,000 and unlock further capital.

Low doc business loans

Just because you don't have all the required documents for a standard business loan doesn't mean you're out of options. Low doc finance enables you to use alternative documentation, such as other business financials, in the application process to access the funds you need.

Lines of credit

A commercial line of credit allows you to draw from your loan account whenever your business needs access to their funds, instead of managing a lump sum and repaying it like a regular loan. This can add flexibility to your finance arrangement, providing money when you need it.

Invoice finance

Invoice finance presents another option to business operators looking to free up cash through outstanding invoices yet to be paid by their customers. Your invoice finance can either be invoice discounting or factoring, which present different options when it comes to your invoices.

Equipment loans

A common reason for seeking out a loan is to purchase commercial equipment. You can do this either with an unsecured arrangement or one with the equipment itself as collateral, with the latter potentially increasing your borrowing power and lowering your interest rate.

Supply chain finance

With this finance, when your business purchases product, your supplier provides an invoice which you send to your financier and pledge to repay by a set date. From there, your supplier sells the invoice to your financier at a discounted rate, while you repay the full amount to your financier.

Inventory finance

Under an inventory finance agreement, your lender pays your supplier directly for inventory, which allows it to be signed off and sent to you. From there, you can pay off your debt within a pre-determined period to your lender, which may be longer than the regular debtor period.

Overdraft facility

An overdraft facility is attached to an existing financial account belonging to your business, such as a transaction or savings account, and enables you to borrow up to a set limit after the account’s balance reaches zero. These overdrafts are repaid with interest, but only on what you use.

Cash flow loans

You may simply be in a position where your business needs a boost to its cash flow. If this is the case, there’s a range of stop-gap solutions which may be suitable for your situation, from standard unsecured loans to specialist cash flow loans, invoice finance or even an overdraft.

Why compare business loans through Savvy?

100% free service

It won't cost you a cent to compare a range of business loans through Savvy, enabling you to come back at any time.

Reputable lending partners

You can compare business loan offers through a range of trusted Australian lenders, giving you more confidence in the process.

Online comparison process

You can fill out our simple online form to generate business finance quotes tailored to your business' needs in minutes.

How to apply for a business loan

Compare and choose with Savvy

Once you’ve considered your options with Savvy, you can select the loan best suited to your business and proceed with that lender.

Gather your documents and submit your application

Make sure your documents are in order and up to date when you submit them alongside your lender’s application form.

Receive a fast outcome

In most cases, your lender can get back to you confirming whether your application was successful within the same day.

Sign your loan contract and receive your money

If approved, you’ll receive a loan application to sign and return to your lender, after which the funds will be transferred to your business’ account for your use.

Frequently asked questions about self-employed business loans in Australia

Can I use a personal loan for my business instead?

Yes – if your business is particularly small or doesn’t otherwise qualify for business financing, you could instead look to a personal loan. These range from as low as $2,000 up to $50,000, making them suitable for smaller investments. They can be paid over one to seven years and used for any personal or business purpose you like. These are unsecured, so the interest rates they come with may be higher than other business finance types.

Am I able to get a business loan as a startup?

Yes – there are specialist lenders in the market who can offer startup business financing despite having less than six months of trading under their belts. These loans are likely to come with higher rates, shorter terms and lowered borrowing potential, as they’re considered riskier. Lenders will also want to see a history of business operation from you in the past, as well as a strong credit score and potentially transferrable skills for running your business.

How much can I borrow with a business loan?

This depends on a variety of factors which will be decided by your lender, such as:

Loan security (unsecured loans up to $500,000, secured maximum tied to the value of your asset)
Available cashflow
Trading time
Business and personal credit score
Business assets and liabilities
Projected revenue generation

How long can I take to repay my business finance?

Different business loans will come with different available borrowing terms. For small unsecured business loans, you can typically secure a term as short as three months up to a maximum of five years, while secured loans allow you to borrow over up to ten years in some instances. Asset finance typically comes with terms of one to seven years. This flexibility enables you to select a period which suits your business’ ability to manage repayments.

Do I have to pay back my business loan on schedule?

No – many business lenders offer loans without any fees associated with paying out your debt early. This option is a highly desirable one for many businesses, as it affords them the flexibility to repay at a faster rate should they become able to. This will help save on interest and fees overall.

Will the type of business I’m running affect my chances of loan approval?

It can – some lenders will have a list of business types and industries with which they won’t work. For instance, pawnbrokers, stockbrokers, tattoo studios and taxi and rideshare services may all be excluded from your lender’s available list of businesses.

Are there any limits on how a business loan can be used?

The only real limit to business loans is that they must be used for business purposes. Whether you’re a restaurant owner looking for a loan or running a medical practice and wanting to give your office a makeover, business loans are highly versatile and can be adapted to your needs.