Knowing how to compare business loans is a key step in finding the right working capital solution for your business.

Business loans can provide a vital avenue for small and medium-sized enterprises (SMEs) to access the working capital they need. Whether you’re looking to expand your market reach, manage cash flow during seasonal slumps, or invest in new machinery, stock or equipment, having confidence in your loan choice is invaluable.

At ScotPac, we’ve been supporting SMEs across Australia for over 35 years and now work with more than 9,300 businesses, delivering tailored financial solutions. While our lending specialists are always ready to provide personalised support, this guide covers everything you need to know to get started with comparing business loan options.

What to Consider When You Need to Compare Business Loans

The key to effectively comparing business loans is doing your due diligence. That means thoroughly researching the terms, features and costs of each loan package – as even small differences can impact how much working capital is available to your business.

Interest Rates

When comparing different loan offers, the simplest way to work out how much your loan repayments will cost you is to compare interest rates. The higher the rate, the more you’ll pay each month on top of the principal.

However, it is also important to consider the comparison rate. This includes not only the interest rate itself but also any applicable fees, providing a more accurate idea of the total cost of borrowing the sum of money.

Fixed vs Variable Rates

In addition to the actual interest rate, it is important to consider whether or not the business loan in question is with a fixed rate or a variable interest rate. Fixed rates offer more predictability from a cash flow management perspective. Variable rates can fluctuate, meaning you could save money if rates fall – or pay more if they rise.

Fees and Charges

As mentioned above, it’s not just the interest rate that needs to be taken into consideration. Lenders may charge different fees – so it’s important to ask upfront whether the following apply:

  • Application fees – charged when you apply for the loan, regardless of approval
  • Establishment fees – a one-off fee to set up the loan facility
  • Ongoing account or service fees – monthly or annual charges for maintaining the facility
  • Early repayment fees – penalties for paying off the loan ahead of schedule
  • Late payment fees – extra charges if you miss a repayment
  • Exit fees – costs applied when you close the loan before the full term

Being aware of these fees from the outset will help you make a more accurate comparison and avoid unexpected costs down the track.

Loan Terms

Short-term loans may come with higher repayments, but if you need an immediate cash injection that boosts short-term cash flow, they could be more cost-effective than a long-term loan with higher interest over time.

Loan Types

It’s important to have a clear understanding of how you plan to use the funds from your business loan. Different loan types may be better suited to specific business needs or forms of expenditure.

For example, asset finance may be more appropriate for investing in new machinery or vehicles. invoice finance, on the other hand, could be ideal for managing cash flow when customers are slow to pay their invoices.

Security

Business loans can be either secured or unsecured. Secured loans require collateral – usually in the form of property – and typically offer lower interest rates.

Unsecured loans don’t require any assets to be put up as security, but they often come with higher interest rates and may have stricter eligibility criteria.

Lenders

Each year, more businesses turn to non-bank lenders for their working capital needs. With simpler application processes, faster turnaround times, and better access to decision makers, lenders like ScotPac are making it easier than ever for SMEs to access the funding they need.

When comparing business loans, it’s important to look beyond the loan features alone. Make sure you also consider the lender and whether they offer the level of service and support your business needs and deserves.

Business Loan Comparison Tips

Clarify your needs and finances

The first step is to ensure you understand why you need the business loan and for what purpose you will be utilising the funds.

Part of this process is assessing your financial situation. This includes your cash flow, credit score and ability to meet the monthly repayments.

Compare loan types and lenders

Once you have an idea of what you need and what you can realistically borrow, you can begin to compare different lenders as well as look at the various different financial facilities.

Review the loan

Once you’ve compared your options and chosen a loan, be sure to read the fine print. It’s important to understand all terms, conditions, fees and charges before signing anything.

Speak to the professionals

Whether you need help working out your cash flow forecast to understand what you can realistically repay each month or want to explore flexible finance options beyond traditional business loans, speaking with the lending specialists at ScotPac means you’ll get tailored advice to suit your needs and support your goals.

With ScotPac as your partner, there’s no need to keep comparing business loans. We’ll save you time, money and hassle by doing the hard work to find the right finance solution for your business. Find out more about our fast, flexible business finance today.