Businesses are expensive to start and run, and as such, they generally require a large amount of capital to pay for these expenses. To pay for this, businesses may take out a business loan. As with all loans, a business loan must be repaid-with interest.
A business loan can be used to pay for expenses that the business is unable to pay for itself at that particular time, such as:
A business loan can be secured by the office or storefront property owned by the business (commercially secured business loan), or by the home the business owner lives in (residentially secured business loan).
Business loans charge interest rates in a slightly different way to other types of loans – they charge a risk margin based on how the lender views the business’s prospects for success.
MortgageBiz can help you compare business loans using our website, which compares business loans with star ratings to represent the value a loan provides for businesses. Things to look for in a business loan include:
MortgageBiz researches and rates both business loans and business overdraft facilities. We recognise that business owners have different needs and wants when it comes to getting a loan or credit for their business.
A business overdraft is a line of credit that becomes available to a business when you make a withdrawal for a greater amount than the balance in your business transaction account. The bank then extends credit up to the maximum overdraft limit. Interest is charged on the fluctuating daily balance, and the overdraft balance does need to be repaid but there is no set timeframe to repay the debt.
This essentially means that a business can continue to make withdrawals when the account is empty, giving a large degree of flexibility in its cash-flow. This can be useful for paying employees or bills on time, even if your clients have not paid you yet.
As with a business loan, any debt on a business overdraft facility needs to be repaid, and interest is charged on the overdraft based on how much credit you’ve used within a certain period.
Account balance: The amount of money you have in your account.
Business loan: A loan granted to fund a business and its proceedings.
Business overdraft: A line of credit that becomes available to a business when it makes a withdrawal for a greater amount than the balance in your business’s debit account.
Fixed interest rate: A fixed interest rate remains the same for the entire duration of the loan.
Loan balance: The amount of money left to be repaid on a business loan.
Loan term: The term of the loan usually refers to the length of time the borrower has to repay the loan. This is different from the loan terms and conditions, which are a full list of the lender’s conditions in agreeing to offer a loan, including the interest rate, fees and charges, and the loan term.
Risk margin: When setting the interest rates on a business loan, lenders apply a ‘risk margin’ based on how risky it is to lend to the business. Lenders consider factors including how successful the business is already, and its prospects for future success such as its location, customer base, ability to service debt, and the reason for borrowing.
Secured loan: A loan that is backed by ‘security’ (collateral) such as the property the business owns (commercially secured) or the home the business owner lives in (residentially secured).
Unsecured loan: A loan that is obtained without security (collateral).
Variable interest rate: A variable interest rate fluctuates over time based on the RBA cash rate and the lender’s business decisions.
