You might assume that going directly to the bank is your best option for securing a loan, but think
again. Banks are known for:
- Excessive credit expectations— often most consumers and business entrepreneurs can’t
- Reporting your enquiries to your credit file and thus lowering your credit score
- Rejecting finance applicants with average or good credit files because of just one negative credit file item
- Rejecting applicants who need assistance preventing foreclosure or paying off overdue bills
- Charging exceedingly high interest to those with poor credit files
- Having no access to private lenders or alternative private loan options, meaning you’re stuck with their products only
Banks are notorious for not assisting consumers and business owners in their time of need.Instead,business entrepreneurs and consumers often turn to the services of alternative lending.
What to look for when choosing your business loan:
There are many different business lenders in Australia, all offering different business loans.
The actual repayment amounts will depend on the term, or length, of the loan. To figure out what kind of a loan term is right for your business you will have to calculate how much you can afford in in repayments. Essentially the longer the loan term, the less you will have to pay in each installment but the overall interest cost will be higher.
Secured loans can be cheaper however, they also require you to put up collateral, or security, for the loan. This can include various types of assets, including property or business assets. While secured loans will have a lower interest rate, be aware that the lender can seize your property or asset if you can’t pay on time. For this reason, many small businesses aren’t comfortable putting up their house as collateral for a small business loan in Australia. Many other small businesses simply don’t own an asset or property that can be used as security.
Different lenders will have different fees for their small business loans. These can include establishment or application fees, ongoing monthly fees, early repayment fees and exit fees. While one lender may offer a lower interest rate, you could be paying more overall in loan fees when compare to another lender with a slightly higher interest rate.
Some lenders (mostly banks) will ask for detailed business plans when applying for small business loans in Australia. These documents should include a profit and loss budget, cash flow projections and a basic financial history at the least. Some lenders won’t require this kind of documentation; instead, they’ll use business bank and accounting data when assessing the loan application.