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Learn the Benefits! Pros & Cons of Loans for Small Businesses

Jul 14, 2022 | Finance Tips

Running a small business in Australia can be a rewarding but challenging feat. As a business owner, you’ll naturally want to drive your business to grow. If you’re feeling stuck, then a Business Loan may be the financial fuel that frees your cash flow to really kick your growth up a gear.
The route to funding business growth doesn’t need to be riddled with confusion. This guide should help you learn the benefits of Commercial Loans for Small Businesses; keep reading as we shift through the pros and cons of small business financing.

Benefits of a Commercial Loan for Small Businesses

Understanding which finance option best suits your small business will be crucial to a business plan. When looking at your financing options, Commercial Loans for Small and Mid-Size Enterprises (SMEs) will probably hit the top of your list — and for good reason! There are many pros to Business Loans:

1. A Business Loan can provide financial security

Whether you need to tackle your fixed overhead costs, purchase inventory, set up your first office or shop front, purchase a new vehicle or equipment, or simply meet unexpected expenses, Business Loans can make it happen. By providing a lump sum of funds for business purposes when you need it most, a Business Loan can add an instant injection into your working capital or help free up your business cash flow to provide some security over your immediate business future. While you’ll of course need to repay the loan, having the extra capital means that you can grab hold of business growth opportunities or sort out other short-term finance needs.

2. Fast approvals*

Small business owners know better than most that time is money. Commercial Loan applications for Small Businesses tend to be assessed very quickly, which means you don’t have to spend excess time waiting around to know if your business finance is approved or not.
To make the application process as efficient as possible, you can help by providing all of the information required as quickly as possible. This will include bank statements and financial statements, or your business finances, as well as information about your small business, your desired loan amount and whether you have any security for the loan.

3. Tax Deductibility

When you borrow money as a business, generally speaking, you can claim a tax deduction on the interest that you pay. This can help reduce the overall amount of tax you pay and can be used as a smart strategy for business cashflow and tax planning, but you should always consider seeking independent professional advice regarding your legal, financial, taxation or other needs, before making any decisions regarding tax deductions.

4. You can offer up security

Most lenders will look favourably at your Business Loan application if you can offer up some security for the loan. Depending on the lender, you may be able to offer residential property, commercial property or the vehicle or piece of equipment you’re borrowing money for, as security for the loan — in case the worst happens, and you can’t repay it. Business Loans secured by assets typically have far more attractive interest rates than Unsecured Business Loans, which can make it much more affordable.

Good to note:

Finance One Commercial Loans between $75,000 to $150,000 must be property-backed, meaning the applicant needs to be a property owner.

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Some of the cons to Commercial Loans for Small Businesses

Naturally, you can expect some downsides to accessing a Loan for your small business, which is why it’s important to weigh up whether a Business Loan is the right move for your financial situation. Some of the cons to business finance can include:

1. Strict eligibility criteria

Lending to small businesses or a new business can be more risky than lending money to medium-sized businesses or established businesses with a higher monthly turnover. This is why the overwhelming majority of lenders set strict eligibility and lending criteria for their Business Loans. The additional risk of lending to small businesses can translate to slightly higher interest rates. Of course, the higher the interest rate, the more you pay across the repayment schedule.

2. Some inflexibility

The strict eligibility that we mentioned above can, unfortunately, translate into some inflexibility when it comes to your loan options under business finance. Small businesses may find that the loan types are restricted to only Secured Business Loans, which puts an Unsecured Business Loan out of the question for some applicants.
Unsecured business finance can come with a higher interest rate, but depending on your needs, an Unsecured Business Loan may be the only viable option for you — for example, if you’re unable to offer an asset as security on the loan.

3. Approval process will depend largely on your credit history

Businesses aren’t immune to credit checks. Similar to when consumers apply for Personal Loans, lenders with an Australian Credit Licence will want to look at your credit history through your credit report. If things haven’t always run smoothly for your business (and let’s face it, COVID-19 has affected a lot of Australian small businesses), then your credit rating might have taken a hit.
Poor credit can put a very big question mark over the certainty of approval through mainstream or traditional lenders of business finance, which can make the entire process disheartening.

Applying for a Finance One Commercial Loan for Small Businesses

Do you want to watch your business grow but are worried about your bad credit? Accessing funds for a business purpose doesn’t have to be out of reach — it’s just a matter of getting the right lender who will take a personal approach to assessing your application. To improve your business activity and get a possible approval as quickly as the next business day*, speak to the team at Finance One Commercial today, about applying for a Commercial Loan for your Small Business.

All loan applications are subject to normal lending criteria. Fees and charges payable. Terms and conditions apply. Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent advice regarding your legal, financial, taxation or other needs, to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information.

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Makala Elliott

Makala is the Marketing Manager at Finance One. She has worked in the Finance and Lending industry for over 10 years, gathering a wealth of experience. She is passionate about helping Australians get back on track with their finances by passing on her knowledge.

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