Unsecured vs. Secured Business Loans in Australia: Which One Suits Your Business?

Choosing between business loans in Australia will significantly determine the financial future of your company, with secured loans having loan amounts between $750,000 and $50 million, while unsecured loans have a maximum amount of $750,000.

Differences do not stop there with loan amounts. Collateral backed secured loans like property or machines carry lower rates from 2.5% to 13%. However unsecured loans, while easy to obtain with approval times of 24 hours, carry higher rates from 7% to 30%. Whether growth is in your future or additional fast working capital is needed, awareness of these differences is the secret to your success as a business.

Business Loan Requirements

There are several key considerations that lenders make when they are evaluating your business loan application in Australia. A minimum credit score is a fundamental consideration, and best terms and rates usually go to lenders who see a score higher than 670. For secured business loans in Australia, the lowest acceptable credit score is 580.

Personal credit scores are very important, especially for new businesses. Credit scores range from 300 to 850 and are calculated based on five factors: payment history (35%), amounts owed (30%), length of credit history (15%), credit mix (10%), and new credit (10%). Business credit scores, usually from 0 to 100, are also essential for loan consideration.

For established businesses seeking secured loans, the lenders review collateral value to ensure that it includes 80% to 100% of the value of the loan. Eligible forms of collateral include property, shares, vehicles, and money. Furthermore, personal guarantees from all owners of the business with a significant percentage of stakes are required by most lenders.

Start-ups need more requirements, including comprehensive business plans that address products, services, market analysis, and competitive positioning. Cash flow projections and interim management accounts could also be needed in order to determine business viability.

Loan Application Process

Applying for  business loans in Australia is a rigorous planning and attention-to-detail process. Preparing your application means you will need to collect the necessary documents, including financial details for the business, tax returns, bank details, and proof of personal income.

First develop a decent business plan that outlines the business’s expectations financially and operations. Second, review your financial capacity very carefully, including the maximum repayment capacity, loan-to-value, and what collateral you have available.

In the case of secured business loans in Australia, the lenders typically determine the value of the security through an independent assessment. Additionally, you will need to present documents attesting to the ownership of the assets on which you plan to lodge as security. In contrast, applications for unsecured loans focus more on your credit’s worth and financial history.

The processing time varies based on the lender and the loan. Bank loans usually take three to four weeks to process, whereas secured loans might take longer to analyze the collateral. Some internet lenders offer expedited processing with a response within 24 hours.

Most lenders would perform a hard credit check in the consideration process. Therefore, do not apply for several applications at a time as this will negatively impact your credit report. Instead, look and identify the best lender for you. When approved, spend time reading and comprehending the loan agreement prior to signing. Be attentive to interest rate, repayment time, and fees involved. Upon finalizing the terms, the loan will be transferred to your business account, often in a matter of days after signing.

Making Your Decision

Selecting between secured and unsecured business loans in Australia requires careful consideration of the financial health and risk tolerance of your company. Secured loans tend to carry lower interest rates since the lender takes less risk due to the collateral aspect. In fact, secured loans often come with fixed interest rates and extended repayment terms.

The other key consideration to balance is your company’s cash position. New data show that Australian small businesses have maintained sizeable cash buffers accumulated during the pandemic, which is a critical contributor to their financial resilience. Therefore, if your company has good cash buffers, you might like an unsecured loan to maintain flexibility.

According to recent figures, fewer than 1% of all Australian loans are in serious arrears, and not many borrowers are in adverse equity situations. However, there is a necessity to analyze your capacity to repay with care. Banks care more about your ability to service the debt than your business plan.

Conclusion

Lastly, both secured and unsecured business loans in Australia have their advantages for Australian businesses. Secured business loans in Australia certainly appeal to those companies who wish to secure higher amounts of up to $50 million at reduced interest rates between 2.5% and 13%, though it requires valuable assets as collateral. However, unsecured business loans in Australia offer quicker approval and greater flexibility and is an optimal choice for companies looking for working capital needing to borrow quickly without collateralizing assets.

You must evaluate your existing financial position of your company, your goals for growth and your level of risk to make the choice best suited to your needs. Weigh in your credit history, value of collateral and cash flow situation when making this important decision.

Efficient Capital is prepared to help guide you through making such an important financial decision. Our experienced staff examine your business profile closely and facilitate matching you with the appropriate loan solution. Don’t spend time- or take the responsibility and risk- navigating complicated loan terminologies alone. Allow our loan experts to negotiate the best funding options for your company’s needs.

Schedule a consultation with our lending specialists today and we’ll evaluate your unique circumstances while proposing a loan structure best suited for your business development objectives.