What is a business loan?

You borrow an agreed amount and repay it in instalments over a set term, or you take a revolving facility and draw on it as you need. Loans can be secured against property or equipment, or unsecured and priced on your trading record instead. Secured facilities usually cost less and stretch further, because the collateral reduces the lender's risk.

The lender then runs its underwriting: serviceability from your cash flow, business and director credit files, valuations on anything you pledge, and a look at how concentrated your customers are. Clean, current accounts and a clear use of funds move that process along, while missing paperwork stalls it.

A term loan hands over a lump sum you repay in instalments, which suits capital purchases and buyouts. An overdraft or revolving line lets you draw what you need and pay interest only on the balance used. Equipment and vehicles are usually funded by asset finance, often structured as a hire purchase or chattel mortgage so repayments run alongside the working life of the asset.

Where cash is tied up in unpaid invoices, factoring and invoice discounting advance money against receivables. Merchant cash advances take a slice of future card takings, and bridging loans cover a short, immediate gap. Both of those carry a higher effective cost than a standard facility.

Pricing starts with a market reference rate plus a lender margin, and that margin reflects risk: your credit history, how long you have traded, your industry, and whether the facility is secured. Start-ups and higher risk sectors pay a wider margin.

The rate is only part of it. Establishment fees, monthly service or facility fees, valuation and legal costs, and break costs on early repayment all add to the real number, so compare total cost rather than the headline. Interest on borrowing used for business purposes is generally deductible, so check with your accountant or the ATO.

Debt is not always the right answer. Government grants and programs may cover part of a project. Leasing, through a finance lease or a novated lease for vehicles, gives you the use of an asset without buying it outright. Equity funding or crowdfunding raises growth capital without repayments.

Supplier payment terms and trade credit stretch your cash without a formal facility, and receivables based finance releases money you have already earned. A merchant cash advance gives very fast access but at a high effective cost, so weigh it against slower, cheaper options first.