What is a business loan and how does it work?

If you're a business owner, you might be considering  taking out a loan to finance your operations, expand or invest in new equipment or technology. Before you apply for a loan, it's important to understand the basics of business loans to make an informed decision that suits your needs.

What is a business loan?

A business loan is an arrangement whereby a business is provided funding, usually by a financial institution such as a bank. Business loans provide funds for a variety of purposes, such as covering day-to-day expenses, purchasing inventory or new equipment, hiring employees, expanding operations or consolidating existing business debt.

Eligibility requirements for taking out a business loan

The eligibility requirements for taking out a business loan depend on the lender and how you plan to use the funds. When assessing your eligibility for a loan and how much you can borrow, a lender may look at:

• your annual revenue
• time in business
• creditworthiness of your business and all associated applicants
• what assets you can provide as security against the loan
• personal guarantees you can make
• the type of loan you apply for.

Learn more at small business loans - what you need to know before applying  or speak to a NAB business banker.

What are business loans used for?

Business loans are typically used to start or grow a business or keep it running smoothly. Common uses for a business loan include:

• commercial real estate purchases or re-fitting
• cashflow for everyday expenses
• debt consolidation or refinancing
• equipment purchases
• inventory purchases
• business acquisitions or expansion
• covering start-up costs
• purchasing a franchise
• marketing and advertising.

What are the benefits of a business loan?

A business loan can provide a business with the capital necessary to invest in growth opportunities. This can help the business expand its operations, increase its revenue and become more profitable over time. Additionally, a business loans may offer lower interest rates and longer repayment terms compared to other types of financing, such as credit cards.

A business loan can offer you the flexibility of fixed or variable interest rates and various repayment options, such as principal and interest or interest only.

Types of business loans

There are several types of business loans, each with its own features and benefits. These include business term loans, equipment finance, chattel mortgage, invoice financing, and overdrafts. A term loan provides flexible repayment and term options for a variety of business needs, while equipment finance and chattel mortgages are designed to help businesses purchase new equipment or vehicles.

Invoice financing provides businesses with funds based on their outstanding invoices, while lines of credit offer businesses a lump sum of money to be repaid over a set period of time. An overdraft gives a business access to funds when they need it.

What is the difference between a secured or unsecured business loan? 

Business loans may be either secured or unsecured. A secured business loan requires the borrower to provide collateral, such as property or equipment, along with a personal guarantee as security for the loan.

An unsecured business loan does not require a business to provide any collateral. Instead a lender will look at the time in business, strength and cashflow of your business to secure the loan. Unsecured loans typically have a higher interest rate as there is greater risk that the loan funds cannot be recovered by the financier if something goes wrong.

We offer both secured and unsecured business loans. For fast access to funds, you can easily apply online for our NAB QuickBiz unsecured business loan facility of up to $250,000. If approved, the funds could be ready tomorrow.

Alternatively, find out more about our Business options loan which is a flexible business loan which has both secured and unsecured options available or explore our Business Markets Loan for finance greater than $250,000.

Learn more at Secured vs unsecured loans: what’s the difference? or speak to a NAB Business Banker to have a solution tailored to you. Contact us to 13 10 12 or request a call back.

How much can I borrow for a business loan?

The amount you can borrow for a business loan may depend on your business's financial situation, credit score, collateral, revenue and other financial metrics. Lenders typically offer loans from a few thousand dollars to several million dollars, with repayment terms ranging from a few months to several years.

See our Business calculators which may assist you in determining how much you can afford to borrow, help you manage your cash flow and run your business.

How to apply for a business loan

To apply for a business loan, you will typically need to provide the lender with information about your business. This may include your financial statements, tax returns, bank statements, business plan and other relevant documents.

You may also be required to provide collateral or a personal guarantee.

Find out more here Small business loans - what to know before applying or speak to a NAB Business Banker to have a solution tailored to you. Contact us to 13 10 12 or request a call back.