For small and medium sized enterprises (SMEs) and growing businesses, a business loan can provide the right level of financial support and working capital to help ensure long term success.

However, many business owners are still unsure about how business loans work and how to apply for one. In this guide, we will introduce you to the concept, advantages and aspects you need to know when it comes to business loans.

What Is a Business Loan and How Does It Work?

Business loans are a financial solution designed to provide a lump sum of capital to a business or organisation. In turn, the business repays that loan to the financier over time in the form of regular repayments – most commonly monthly – plus incurred interest.

What Can a Business Loan Be Used For?

In general, business loans are designed to help businesses manage their cash flow, meet operational costs, purchase new equipment, stock or assets, invest in market growth or expansion, or cover other business-related expenses.

Some SMEs use business loans to hire new staff or renovate business premises. Others might use it for a very specific purpose, such as the acquisition of a new machine or technology, or even to fund a marketing campaign.

What Can a Business Loan Not Be Used For?

On the other hand, business loans cannot be used for expenditure that is not related to legitimate business purposes. Personal expenses, speculative investments, and – of course – illegal activities are ineligible for being funded by business loans.

It is also important to note that some lenders may disclose specific purposes for which the loan may not be used. If you are considering using your business loan to fund activities or purchases that you are not sure fall into the business-related category, make sure to discuss this upfront with your ScotPac lending specialist.

Business Loans vs Personal Loans

Apart from the use of business loans for business-related expenses only, there are a few other important distinctions between this financial solution and that of a personal loan.

Loan amount

Business loans are typically higher than personal loans, as your eligibility to borrow is based on the financial health of your business rather than personal capacity.

Application process

We will expand on how to apply for a business loan later, but suffice to say here that business loan applications require business-related financial documents as opposed to personal credit-related documents typical of a personal loan.

Collateral

Business loans can be unsecured or secured – meaning you will need to put up an asset, such as property, as collateral – whereas it is more common for a personal loan to be unsecured. This isn’t always the case though. Where a secured business loan is applied for, one can put up business assets as a guarantee – whereas for a personal loan, the asset will need to be owned by you personally.

Interest Rate

Interest rates are usually lower for business loans, but this can vary depending on your business’s creditworthiness.

Tax Deductibility

Whilst the repayment instalments of a business loan are not tax deductible, the interest incurred on the loan may be.

How to Apply for a Business Loan

Now that we have covered what business loans are and how they work, how do you go about applying for one?

Determine your needs and capability

The first step is to clearly understand your business’s need for a loan. Ensure you understand what you will be using the loan for and therefore the amount and type of loan required.

If you are not sure how to approach this, the business lending specialists at ScotPac are here to help – get in touch with us today.

Prepare your financial documents

Once you are ready to apply, make sure you have the required financial documents. At a minimum, this includes bank statements for the past six months – but can also include cash flow projections and a business plan, depending on your lender.

Research potential lenders

There are a number of lenders in the market that provide business loans. It is important that you understand the different offerings, terms and eligibility criteria to find the right one for you.

Apply for a business loan

With the right documentation and a strong understanding of your needs, you will be ready to apply for your business loan. At ScotPac, our application process can be completed in under 5 minutes and is entirely online.

All you will need is six months’ worth of bank statements and identification for all business owners and applicants. Then our credit team will review your application (often within 24 hours) and provide funds within one business day of approval.

Applying for a Business Loan with ScotPac

ScotPac is Australia’s biggest non-bank lender and has been providing tailored business finance solutions to SMEs for over 35 years. Our business loan solutions range from $10,000 to $500,000.

But why are more and more SMEs turning to non-bank lenders, like ScotPac, to apply for their business loan?

  • Our application process is simple and streamlined, requiring minimal documentation and offering same-day decision in some case 
  • More flexible eligibility criteria – including continuous operations at a single address for at least 12 months, Australian residency, and a minimum monthly turnover of $10,000 – means that more SMEs can access the funds they need 
  • We offer greater borrowing power – with businesses able to borrow up to 150% of their average monthly sales turnover – based on a holistic assessment of their business’s financial health rather than just personal creditworthiness 
  • No additional fees such as account keeping charges and no early loan payout charges ensures there are no surprise costs 
  • Easy business loan management through an online customer portal 

How to Apply for a Business Loan with ScotPac

If you are ready to start the quick and simple online process of applying for a business loan with ScotPac, click here. Or – if you’d prefer more information or tailored advice from one of our lending specialists – call us today on 1300 660 681.