Don’t mull it over! Avail UM Oceania’s commercial loans at lucrative rates and expand your business.
If you are a business owner in Australia, then you have probably wondered, ‘How can I get a commercial loan?’ or ‘Is it Difficult to get a commercial loan?’. Obtaining a loan for small to medium-sized companies in Australia can prove to be quite challenging. Before you make your final borrowing decision, it is imperative to know what kind of loan is best suited to your business. We have curated a detailed guide to commercial loans in Australia that will take you through the A - Z of this loan product. In this piece, we will take a look at the benefits of commercial loans and how they are related to your finances.
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What are Commercial Loans?
Commercial loans, also known as business loans, can be defined as long-term, large loans that can be obtained for a number of different end uses. These loans can be crucial to the growth and expansion of any business. These loans can be used for various uses like purchasing a commercial property, hiring employees, buying new equipment, etc. These loans are available in secured and unsecured lending and can be availed by all types of companies, from small start-ups to large business organisations. In this piece, we will take a look at some of the details regarding commercial loans in Australia and how you can use them for your business.
Eligibility for Commercial Loans
Every lender in Australia has different eligibility criteria that will need to be fulfilled in order to be eligible for a commercial loan. However, given below are some of the common criteria that apply to all lenders:
In order to qualify for an unsecured commercial loan, you’ll need to prove that the business has been in operation for at least three to six months. Some loan providers also offer loans for new businesses, and you also might have the option for alternative borrowing, such as equipment loans and invoice factoring. Such loans generally do not require your business to be a specific age.
Turnover of the Business
Most banks in Australia also require the business to have achieved a certain level of turnover in order to obtain the loan. The turnover required can be as little as $5,000 per month and can go up to $200,000 per year, according to the discretion of each lender.
The applicant needs to have an Australian Business Number (ABN) or Australian Company Number (ACN) to be eligible for commercial loans in Australia.
What are the Benefits of a Commercial Loan?
A commercial loan can be the ideal way for a business to finance its growth and is generally backed by the business-owned assets. These loans have a number of different benefits, in terms of business growth. Let’s go through some of them:
Variety in Options
When it comes to commercial loans, you can obtain financing for numerous reasons, whether you seek construction funding, asset-based lending, commercial real estate investment, private lending, etc. When it comes to commercial loans, you can get a loan best suited to your business and funding needs.
Generally, commercial loans are more cost-effective than standard bank loans. This is primarily because these are asset-based loans that have a collateral. This enables commercial loan providers to offer at low interest rates.
Easy Repayment Methods
Usually, commercial loan lenders provide convenient payment methods that are best suited to the needs of your business. For instance, if you obtain a loan to fund an expansion , like opening a new store branch or purchasing new equipment, you can get a repayment option based on the cash flow estimation of the business, i.e., when the business generates profit.
No or Few Limitations
Unlike typical bank loans, that can be availed only for a specific purpose, commercial loans can be availed to use the amount for numerous purposes. You can benefit from much required flexibility and expand and sustain their business., without having to be limited by tight restrictions.
Commercial Loans Interest Rates
The interest rate for a commercial loan is typically calculated on the basis of risk. The lower the risk for the lender, the lower the applicable interest rate. The interest rate for a commercial loan in Australia generally ranges from 5% per annum to 25% per annum.
Things to Know About Commercial Loans
Given below are some of the things you need to know about commercial loans:
They are Not a One-Size-Fits-All Solution
There are different types of loans available in Australia, depending on your end-use requirement. As an investor or business owner, you may have a number of different needs to expand your business; a single loan may not be equipped to cover the entire spectrum of needs. Given below are some of the unique commercial loans that you can choose from:
- Commercial real estate loans
- Line of credit for business
- Equipment financing for the purchase of business-related machinery like fabrication equipment, trailers, or tractors
- Commercial construction loans to fund the building of a new building or renovating and existing structure
- Small business loans to commence or expand a business
Interest, Fees, and Repayment Terms Differ Greatly
The various numbers related to commercial loans also vary from lender to lender. For instance, a credit line for a business can come with a repayment period of a year, while a small business loan may have a loan tenure of up to 25 years.
Your financial background and objectives have the potential to greatly impact your fees, rates, and loan terms the lender might be willing to offer you. The lender will take into consideration the following factors while reviewing your loan application:
- Loan type
- Business and personal credit scores
- Personal and business financial statements
- Type of property
- Property condition
The More You Plan, the Better
Most commercial loan offerings have a significant amount of paperwork. This further holds true for larger loans like a construction loan. It is always beneficial to have a deep understanding of the associated risk that can affect the project and a backup plan to minimise each identified agenda. This makes it imperative that you have a comprehensive plan in place before you seek financing for your business needs.
Local Always Works
When it comes to commercial loans, it is always a good idea to go with a local lender who has a deep understanding of your business and community. Given below are a few reasons it's a good idea to go local:
- You’ll get to work with seasoned commercial loan professionals who have a strong understanding of the conditions of the local market, economic trends, area history, and changing demographics
- You will get to work face-to-face with your loan officer, and will therefore be able to build a rapport and eliminate any anxiety
- Local loan professionals usually have in-house resources and tools to speed up the loan approval process
How do Commercial Loans Affect Your Finances?
If you are a sole business proprietor who is borrowing the loan for the business, your name will appear on every debt of the business. Any potential defaults or late payments can, therefore, potentially damage your personal finances also. If your business is a limited company, your business’s name will appear on the debt; this will leave your personal finances unaffected if the company should fall short at any point in time. If you are worried about your business debt impacting your personal finances, given below are some methods you can use to keep the two finance streams independent:
- Consider a Business Credit Card: You may always opt for a business credit card that does not routinely report your activity to credit rating agencies. Keeping that in mind, you need to be dependable with timely repayments to keep this arrangement active. Most business credit cards will report the business to credit report agencies in case of default.
- Restructure Your Business: A sole proprietorship’s and owner’s credit profile are synonymous. Which makes it important to set up the business in a manner that both are kept separate, preferably as a limited company or partnership.
- Consult Your Lender: It can help to have an honest conversation with your loan officer about whether they will be routinely checking your personal credit profile for a favourable business loan or repayment plan. You may also enquire about the loan policy for reporting before you sign on the dotted line.
Why is Commercial Loans Comparison Important?
Given below are some of the reasons it is important to compare multiple commercial loan options before you make your decision:
Get an Understanding of Market Loan Rates
The financial market is getting more competitive than it was a few years ago. So, there is a general pattern of lowering interest rates to attract new borrowers. Unfortunately, every borrower might not find it easy to get an idea about market interest rates without comparing loan options. Thus commercial loan comparison might help you learn more about the different rates and the total cost of the loan. It enables the borrower to decide the best option for them.
Understand Associated Fees
Commercial loans usually come with various hidden fees and charges that the borrower might not be aware of. Lenders usually try to give a discount to curb these charges. The most common charges include pre-calculated interest, document fees, cost of ownership, etc. When accumulated, these fees can add up to a hefty amount and can have a major impact on the cost of the loan. Fortunately, comparison can bring these costs to light. It gives the borrower the necessary information to force a good deal on a loan. This can help in lowering the overall cost of the loan.
Get a Better Deal
Comparing commercial loan offers can help the borrower get an understanding of the deals available with different lenders in the country. Further, when lenders learn that you are considering offers from other loan providers, they might offer you better deals in order to convince you. For example, they might offer you reductions in processing fee and annual fees just to get you to join them.
How to Compare Commercial Loans in Australia
There are a plethora of loan providers who are willing to offer loans at competitive terms. But if you're confused with too many loan offers, it is ideal to compare each of the offers in terms of the following:
- Loan Amount: The loan amounts for commercial loans are generally higher than standard loans in Australia. Regardless of what the loan amount is, it is subject to approval from the lender. So before making the final borrowing decision, you should consider the loan amount that all lenders are willing to offer.
- Loan Terms: The average tenure for a commercial loan ranges from 5 years to 20 years. For such loans, variable interest rates are preferred over fixed interest rate loans.
- Fees and Charges: Like every other financial product, there are fees and charges associated with a commercial loan. While calculating the fees, factor in the upfront charges like application fees, along with the ongoing cost of the loan.
- Repayments: The best aspect of obtaining a commercial loan in Australia is that lenders offer flexible repayment options to ensure that the repayment does not interfere with the cash flow of the business. So it is important to consider different options before settling on a settlement plan suited to your needs.
How to Apply for Commercial Loans
In order to apply for a commercial loan, you need to have a solid reason and sound financial background to obtain it. Reasons for obtaining a commercial loan can include expanding a business, purchasing new equipment, or purchasing commercial property. Once you have a good enough reason, you need to back it up with financial statements. This requires submitting all the necessary documents showing there is a business need for the loan. Once all the details have been verified, the loan amount will be sanctioned and disbursed.
Documents Required for Commercial Loans
Unlike standard personal loans in Australia, banks are often quite stringent with the documents they require as a part of the loan application process. You will be required to submit extensive documents regarding both you and your business, especially if you are perceived to be a credit risk or if you're borrowing a large loan amount. Given below are the items that you should keep in handy while applying for a loan:
- Personal Identification: You will always be required to submit a photo identification document like your driver’s license.
- Business Verification: You will need to provide supporting documentation to prove the ownership, and existence of your business.
- Financial History: Lenders in Australia will usually want to get an understanding of how strong their personal and business finances are. They may require you to submit expenses reports, bank statements, sales records, and other such documents that enable them to determine your creditworthiness.
In addition to the documents mentioned above, you should also make sure that your business’s financial information and details are in order. You should also be prepared to provide additional documents that may be required by the bank on short notice.
For instance, if you are operating a new business which has been trading for less than 12 months, you may be required to submit the following additional documents:
- Lease Agreement
- Business Plan
- Projection of Cash Flow
Having all the necessary documents handy before applying for a commercial loan can ensure that you are prepared to meet any demands for extra details.
Frequently Asked Questions
What is a commercial loan?
A commercial loan can be defined as a large long-term financing option that can be availed to fuel various business needs like expansion, purchase of machinery, purchasing a commercial property, etc
Which bank is best for commercial loans in Australia?
Some of the lenders that offer commercial loans in Australia with favourable terms and low interest rates are Heritage Bank, Westpac Bank, Bank Australia, etc.
What is the interest rate for a commercial loan in Australia?
The interest rate for a commercial loan in Australia usually ranges from 5% per annum to 25% per annum.
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The customised financial services from UrbanMoney Oceania caters to the varying requirements of the applicant on their fund procurement journey.
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Australian based support team
Our support team offers tailor-made services to customers intending to conclude loan transactions without any hassle. Available to customers at their convenience.
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