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Small business loans – how to find the right one for you?

Small Business Loans Australia
01 April 2020 5 minute readShare

Promoted by Small Business Loans Australia

Business financing is a big part of running a successful company. It doesn’t matter whether you’re a startup or a 30-year-old multinational corporation, leveraging the company through debt is important. There will always be bootstrapping companies, but these will remain in the minority as they’re at a severe disadvantage.

In the UK, 99.9% of businesses are SMEs. In Australia, things are no different. This is now the reality for free market economies: everyone can start a business and achieve according to their ambition.

There are some bumps in the road, though. The biggest difficulty for small business in Australia right now is bank financing. The traditional route of going to a high street bank for a business loan is becoming an obsolete waste of time.

The process of applying is the major issue here. It’s a long process, one that takes weeks, if not months. This takes serious effort, as you have to complete a lot of forms and perhaps even produce a comprehensive business plan. It’s not just the wait which can put you off (or literally be unviable to meeting your short-term business needs) but the actual on-going effort of meetings and administration.

On top of this, you have a resoundingly high chance of being rejected unless your credit score is top notch. The low approval rates make the application process seem a complete waste of time, and not even the low interest rates can lure you in.

It just so turns out though that small business loan options are abundant. The market for alternative loans online to small businesses has been booming.

Alternative small business loans

Small business loans are a new (to an extent) type of opportunity for smaller companies that want financing. There are many scenarios in which the banks are not a viable option, and these alternative lenders fulfil these requirements.’

The biggest requirement is merely gaining approval, yet with a sub-par credit rating. Alternative lenders have a unique, algorithmic approach to risk-assessment puts credit score at the back of the list of priority. Instead, they focus on the here and now finances, as long as some basic requirements are met (i.e. 12 months of tradition history).

The other requirement that the online lenders are fulfilling is the time aspect of financing. Cash flow is the single biggest threat to small businesses. Meeting your short-term liabilities, overheads, fulfilling large orders, paying for staff sick leave and so on are all huge problems for small companies. Needing a loan quickly is therefore much more important than for big companies. Online lenders realise that needing cash quickly isn’t synonymous with them being in trouble though, as many growth projects are improvised and immediate.

Online lenders are experts at this. This is what they specialise in. The application process takes all of 5 minutes online and a couple of documents. You then await for a decision, which takes 10 minutes, and it’s possible to then receive the funds within 24 hours.

The process of getting hold of the money is much faster. It’s all digital as well. You simply have to navigate the website, drag and drop in some documents and fill in an easy form that has great UX design. Compare this to a bank, which often requires physical meetings, an awful website or a phone line that’s outsourced and you will be impressed by the service of online lenders.

One threat of these lenders would naturally be their terms and conditions. Because they’re less reputable than banks, it’s only fair to assume they’re riskier themselves. This is true, but what isn’t true is that they all have terrible terms and conditions. 

These companies are operating under different expectations than big banks. Their place in the market is far from secure, and by nature of being all digital, they’re at the mercy of online reviews and social media. It then comes as no surprise that many have impressively clean, clear terms and conditions, because it would otherwise get picked apart online. This is where they get their custom from: online merit. Compare this to banks, in which most customers literally pick one at random, or whichever one has a branch closest to their home.

Lastly, online lenders are more flexible. You can be ultra specific around the amounts you want to borrow, the length of the loan and so on. On top of this, it’s much easier to ask for refinance than banks. It comes then as no surprise that their higher interest rates (and they certainly are always higher than a high street banks) are not enough dampen their popularity. It just feels although it’s part and parcel for being very tolerant to applicants, along with their high level of service elsewhere.

Who are the Australian leading lenders?

As mentioned above, Australia has an abundance of options for small businesses. There really is no shortage of lenders. Many of the market leaders are actually market leaders in Europe and/or the USA too, so there’s a lot of credibility behind them.

Take Capify for example. They have been operating for 17 years with offices in both the UK and Australia. With great customer reviews from both UK and Australian operations, they’re a reliable option. You can borrow between $5,000 and $300,000, with very few documents being required. Unsecured business loans are available, and the main requirement is that your business has a minimum monthly turnover of $10,000 per month. 

Prospa is another very credible option. Prospa actually has one of the highest customer reviews on the market (4.9 out of 5 on Trustpilot) and has won many awards for being the market leader. The funding amounts are the same as Capify, with over 20,000 Australian businesses being funded so far. 

This really captures the magnitude of how popular and useful these loans are, when you consider that small businesses are essentially the backbone of the Australian economy. 

Diverse Solutions supply even larger loans than these two. You can receive up to $500,000, with cash advances, business overdrafts and a long line of credit available. This one is for more established businesses — kind of like the bridge between alternative lending and traditional bank loans. This is great news though, as there’s a wide variety of options which means one should be highly suitable to any given business’ situation.

Many companies will also offer a variety of different financing too, such as capital financing, invoice factoring and cash advances. Whilst others will specialise in offering bad credit borrowers. 

Final word

Overall, the high interest may put off some, but it doesn’t mean online lenders are not profoundly useful in many scenarios. Likewise, traditional bank loans are fantastic for some scenarios. If you have a bunch of time and/or not in a rush for financing, and if you have a great credit score and some assets for security, you can benefit from a very low-interest bank loan. The reality is though that many businesses are somewhere in between, which means that they should expend sufficient effort in finding the lender that’s most suitable for them as opposed to going for the one that appears the most credible or popular.

Small business loans – how to find the right one for you?
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