Understanding common small business loan terms
Recently updated on January 10th, 2023 at 04:51 pm
Small business loans can be a great way to help access extra cash flow and grow your business.
Here’s an overview of what small business loans are and some of the things you should know.
What are small business loans?
Small business loans are used to help small businesses address a cash flow challenge or to boost growth. Funds can be used to make big purchases, manage cash flow or support daily running costs, to name a few.
Small business loans usually are provided as a cash lump sum or revolving line credit that’s borrowed and repaid within a set period of time.
What are the types of small business loans in Australia?
Small business loans can be either secured or unsecured. An unsecured business loan requires no security as collateral to obtain the loan. In this instance, the loan application is assessed based on the business cash flow and ability to make repayments. Meanwhile, as the name implies, a secured business loan needs physical assets as security to obtain a loan (i.e. property).
Other funding options include:
- Invoice financing
Invoice financing works by using unpaid invoices to borrow money from a lender. The business sells its invoices to a lender who will pay a percentage of the invoiced amount. The lender then becomes responsible for collecting payment.
- Line of credit
In a business line of credit, an agreed amount is made available that can be accessed at any time it is required. With a line of credit, you only pay the interest on what you use, not the whole facility.
- Equipment finance
Equipment finance supports the purchase of big-ticket items, such as machinery or equipment.
- Merchant cash advance
The lender provides you with an upfront lump-sum payment in exchange for an agreed percentage of future sales.
- Business credit cards
A business credit card is a revolving credit line that can be used, repaid, then used again. Business credit cards are commonly used to purchase inventory and supplies, pay bills or cover travel expenses.
Small business loan terms
Similar to other loans, small business loans can come with fixed or variable interest rates. Rates vary significantly from one lender to another. Most lenders usually have some basic upfront fees, such as:
- Application fees
- Ongoing fees
- Dishonour fees
- Early repayment fees
- Late repayment fees
- Discharge fees
Small business loans also vary in amount, ranging from thousands to millions of dollars, to accommodate a diverse range of needs. Repayment frequency also varies and depends on the loan terms. This may be required daily, weekly, fortnightly or monthly.
What small business loan features should you look for?
It’s important to also consider any business loan features, including:
- Speed of funding
Private lenders, specialist lenders, non-banks and fintechs are renowned for providing fast, flexible funding with speedy applications. Some applications can be filled out in minutes online and have funding processed within a few days from the application approval.
- Extra repayments
Making extra repayments helps you pay off your debt faster. However, be aware that some lenders charge fees when you make extra repayments.
- Flexible repayments
Lenders typically stipulate a set timeframe in which you can make your repayments (daily, weekly, fortnightly or monthly). However, some lenders provide multiple options, such as making repayments that suit your business cash flow.
What can small business loans be used for?
Small business loans in Australia are used for a variety of purposes, including:
- Hiring and training of new employees
- Payment of staff wages
- Purchasing stock
- Invoice payment
- Debt payment
- Buying of new equipment
- Boosting daily cash flow
- Funding business expansion or any other growth opportunities
What’s the best small business loan for your business?
The most suitable business loan is primarily determined by what you need the funds for, how much money your business needs, your business cash flow and life stage, how much revenue you’re making and how long you require the loan for. You should also consider the corresponding fees and features. An accountant and finance broker are well placed to support you with this decision.
Mango Credit short-term small business loans
Since 2001, Mango Credit has helped thousands of Australians and their businesses get out of a bind or take great opportunities through our short-term financing solutions.
The business loans we offer include caveat loans, home equity loans, first mortgage loans and second mortgage loans. Our loan amount ranges from $25,000 to $500,000+, which can become available within 3-5 days after application. Our loan terms are from 2 months to 24 months+.
At Mango Credit, our application process is simple – it can be done online. We ask for minimal documentation, and there’s no income assessment or credit check. Our services are also available Australia-wide.
Mango Credit is transparent and honest on fees, charges, interest and payment expectations to ensure there are no surprises. Any additional costs for late payments are explained in advance.
Are you ready to apply for a short-term business loan? Fill out an application form now! For enquiries, please contact us.
Key takeaway
Small business loans can provide a quick cash flow injection for various business-related purposes. Different lenders offer different types of small business loans with varying loan terms. In addition to considering fees and interest rates, what will suit your business depends on what you need the funds for, the loan amount, the loan term, how long you’ve been in business for and how much revenue you’re making.
Mango Credit
Yanis Derums is the Founder and Director of Mango Credit– a leading private lender specialising in bridging loans for personal use and business short term loans for commercial and/ or investment purposes. Yanis has extensive experience with financial analysis, credit assessment, product structuring, and general business management