Not all commercial loans are the same. To find the right financing for your business, it’s important to select the right loan type. Australian businesses can choose from a range of commercial loans to help meet their unique needs, from property purchases to managing cash flow.
Let’s explore the types of commercial loans available in Australia, explaining how they work and which situations they’re best suited for. Whether you’re a small business owner or an established enterprise, understanding your options can help you make informed decisions.
What Are Commercial Loans?
Commercial loans in Australia are financing solutions tailored for businesses. These loans can be used for various purposes, including acquiring assets, funding expansions, or managing day-to-day expenses. Each type of loan can work differently. For instance, a traditional term loan will provide you with a lump sum, while a business line of credit will let you draw down from a credit limit. No matter the type, commercial loans are key to getting essential financing to help you maintain and grow your business.
Common Types of Commercial Loans
Here are some of the most common types of commercial loans available to Australian businesses:
1. Secured Loans
A secured loan requires the borrower to offer security, such as property, equipment, or other business assets. By pledging assets, you provide a layer of security to the lender, which can help you secure lower commercial lending rates in Australia compared to unsecured options. Secured loans are ideal for businesses needing substantial funding for long-term projects or investments.
Benefits:
- Lower interest rates.
- Higher borrowing limits.
- Longer repayment terms.
2. Unsecured Loans
Unlike secured loans, unsecured loans don’t require assets for security. Instead, lenders assess your capability to repay the loan through your income, cash flow, and liabilities. These loans are often used for working capital or short-term needs.
Advantages:
- Quick approval for fast commercial loans.
- No need to pledge assets.
- Flexible usage.
3. Asset-Based Finance
Asset-based finance leverages business assets, such as inventory, receivables, or machinery, to secure funding. This type of loan is particularly beneficial for businesses with valuable assets but limited cash flow.
Ideal For:
- Seasonal businesses trying to manage cash flow.
- Companies needing immediate liquidity.
- Businesses needing large capital.
4. Commercial Property Loans
Commercial property loans are ideal for businesses looking to purchase or refinance properties. These loans are tailored for the purchase of offices, warehouses, clinics, stores, or other commercial spaces.
Key Features:
- Long-term financing options.
- Competitive commercial loan terms.
- Refinancing opportunities
5. Business Overdrafts
A business overdraft provides flexibility by allowing businesses to overdraw their accounts up to a pre-approved limit. Since overdrafts are a revolving lines of credit, you only need to pay interest on what you borrowed, and the limit resets when you repay. This option is ideal for managing short-term cash flow fluctuations.
Advantages:
- Only pay interest on the amount used.
- Immediate access to funds.
- No fixed repayment schedule.
6. Equipment Finance
Equipment finance enables businesses to purchase or lease essential equipment. From construction machinery to office technology, this loan type ensures you have the tools needed to operate and grow your business.
Why Choose Equipment Finance?
- Get access to equipment while maintaining cash flow.
- Get potential tax benefits.
- Provides funding for both new and used equipment.
7. Fitout Finance
Fitout finance provides funding for any interior upgrade to a commercial space. This includes plumbing, lighting, interior design, safety features, and more. Whether it’s upgrading a retail store or refurbishing an office, this loan helps businesses create a professional and appealing environment.
Features:
- Specialised financing for upgrading your commercial space.
- Quick access to funds.
- Flexible repayment terms.
8. Invoice Finance
Invoice finance helps businesses access funds tied up in unpaid invoices. You can access a percentage (up to 85%) of your unpaid invoices on the day they are issued, giving you access to instant cash. This option is popular among businesses that work on credit terms and need to maintain steady cash flow.
Benefits of Invoice Finance:
- Immediate cash flow relief.
- Invoices serve as security.
- Helps you take on new clients while waiting for payments.
9. Trade and Import Finance
Trade and import finance is a line of credit solution that helps facilitate the purchase of products from both local and overseas suppliers. This type of financing allows you to purchase material goods in bulk without straining your cash reserves.
Key Features:
- Support for global and domestic trade.
- Longer repayment terms.
- Helps strengthen supplier relationships.
10. Development Finance
Development finance is a specialised type of funding that supports large-scale construction or redevelopment projects. These loans are often structured in stages, aligning with project milestones.
Best For:
- Property developers.
- Large-scale renovations.
- Commercial construction projects.
11. Industry Loans
Certain industries have unique financing needs, and industry loans are tailored to meet those requirements. For example, construction, agriculture, healthcare, and manufacturing businesses often benefit from customised lending solutions.
Examples:
- Agricultural loans for equipment or land.
- Medical practice loans for facilities or equipment.
- Manufacturing loans for plant expansion.
12. Tax Debt Loans
For businesses struggling with ATO obligations, tax debt loans provide a way to manage and pay off tax debts. These loans are designed to alleviate the stress of overdue taxes and keep businesses’ finances on track.
Why Consider Tax Debt Loans?
- Avoid interest charges from the ATO.
- Avoid legal action from the ATO.
- Consolidate multiple tax debts.
13. Private Lending
Private lending offers an alternative for businesses that may not qualify for traditional financing. Private lenders provide flexibility in terms of loan structure and approval criteria, making them a viable option for businesses with unique circumstances.
Key Features:
- Faster approval processes.
- Tailored loan terms.
- Options for businesses with poor credit history.
Understanding Commercial Lending Rates in Australia
When you’re looking for commercial loans, one of the most important factors to consider is the interest rate. Commercial lending rates can vary based on the different factors, such as:
- Loan Type: Interest rates may vary based on the loan type. For instance, secured loan options are typically lower than their unsecured counterparts due to less risk.
- RBA Cash Rate: The interest rates of loans are typically based on the cash rates determined by the Reserve Bank of Australia.
- Economic Conditions: Certain broader economic conditions can affect the interest rates of commercial loans.
- Borrower’s Profile: Borrowers with higher credit scores and incomes may be able to secure better interest rates as they pose less risk to the lender.
- Lender Policy: Interest rates can vary depending on the lender’s discretion.
Commercial Loan Refinance
Can you refinance a commercial loan? Yes, there are plenty of refinancing options available. As your business needs evolve, refinancing can provide better terms or access to additional funds. Commercial loan refinance involves replacing an existing loan with a new one, often with more favourable terms. This can help reduce monthly repayments, improve cash flow, or fund expansion plans.
Choosing the Right Commercial Loan
Selecting the right type of commercial loan depends on your business goals, financial situation, and future plans. Here are some tips for making the best decision:
- Assess Your Needs: Identify whether you need funds for short-term operations, asset acquisition, or long-term growth.
- Compare Options: As you look at various loans, consider factors like interest rates, terms, and approval requirements.
- Seek Expert Advice: Working with a financial advisor or broker can help you navigate different options and secure the best deal.
Final Thoughts
If you’re looking for financing, it’s crucial to understand the types of commercial loans available in Australia. Each type of loan serves a different purpose and can come with different features and terms. From secured loans and equipment finance to private lending and tax debt loans, there’s an option for every need. By evaluating your requirements and exploring the different solutions available, you can find the best loan to support your business goals.
Choose the Right Commercial Loan for Your Business
Need help finding the right financing solution? We can help you select the right loan type and secure the best rates and terms for you. Reach out today to find out how we can help your business reach its potential.
