How To Compare Business Loans Across The Market

Alex Molloy

Monday, 17 October 2016

There is a huge range of finance options available to small business owners, but comparing them across the market can be challenging. From a line of credit to invoice financing to an unsecured loan, there are plenty of ways to bring in the capital you need to scale and grow, but how do you make sure you’re getting the best deal?

The lowest rate is not always the obvious choice. Perhaps you’ve got particular requirements around timing and when you need the funds, or perhaps you want a specific term for the loan. You may be looking for finance to fund a complex transaction, which means there are very specific requirements that are front of mind for you. Regardless of the type of finance you’re after, you want to be absolutely sure that you’re identifying options which complement your business needs.

Identifying your needs and sought-after features is vital. Your end goal is to have a loan agreement that facilitates your business vision and supports your financial goals. To this end, there are five key things to keep in mind.

1. Loan purpose

Carefully consider why you’re taking out finance as this will dictate the type of product that matches your needs. For instance, if you’re a small to medium sized business and you have unpredictable cash flow, then a business overdraft may be your best bet as you can link this to your business account. If you purchase goods from a local or global supplier you may want to opt for trade finance as this will enable you to pay interest on the amount offered for each transaction. On the other hand, if you want to earn rewards or frequent flyer points then you may want to consider a business credit card.

2. Interest rate

While some lenders may attach a fixed rate on the amount you owe, others will use a factor rate which is charged on the principal loan amount. When comparing business loans, keep an eye on the comparison rate as this will give you the best indication of the interest charges for that product. Check to see how often the lender charges interest, such as whether it’s daily or monthly, as this will help you compare rates more accurately across different products.

3. Repayment terms

The repayment terms should sit well with your business cash flow and your ability to service repayments. Some lenders may have flexible repayments terms while others will require fortnightly or monthly repayments. Work with your accountant to see how often you can realistically make repayments on your loan.

4. Loan fees

There are a series of fees and charges that will come with your loan. When comparing products side by side, look at the application or establishment fee, any ongoing account-keeping fees, legal, documentation, and early termination fees.

5. Customer service

Lenders often assign a business advisor to help you with your research and application process. Consider the level of customer service offered by the lender. Do they have a 24/7 online chat service? Do they clearly explain the steps required to apply for a product? Do they discuss eligibility with you such as whether your business needs to have a certain annual turnover? This will help you weigh up your options.

Final thoughts

Once you’ve compared your options and you’re pretty sure you’ve got a winner, there are some things to be careful of when preparing your application. Lenders tend to give consideration to how long you’ve been trading and the time that you’ve been operating under your current structure. If you’re applying for a loan and you’re restructuring or if you’ve been through several restructures in the past, then the lender may be hesitant.

Think ahead: if you were the lender receiving this application, what would these details suggest to you? It may be worth chatting to your accountant or business adviser to get a read on how your application will be perceived.

You’ll also want to be sure that you’ve articulated the purpose of the loan. How will the funds be allocated in your business? How do you intend to repay the loan? Give the lender your cash flow projections to show that you can comfortably service the loan over the specified term.

In summary

  • Articulate the purpose of the loan
  • Use the comparison rate to compare loans across the market
  • Take the time to understand the features and benefits of each option
  • Understand the repayment terms and work with your accountant to set yourself up for repayment success
  • Look out for loan fees, including application or establishment fees, ongoing account-keeping fees, legal, documentation, and early termination fees.

Alex is the co-founder and CEO of Valiant Finance. He brings a wealth of experience from his time as a banking consultant at McKinsey, and has a background in Business and Law.

Related Posts

The low-down on low interest rates: Are they really the best value?

Compare interest rates from 80+ lenders, and find the best value for your business in minutes.

Clients paying late? Solve cash flow issues with invoice financing

Find out if invoice financing is right for you.

Commercial loan criteria: How lenders assess your eligibility

Here’s the key criteria lenders look for when deciding whether to approve your commercial loan.

The future of Aussie SMEs: What can we expect?

What does the future of small business look like? Click for our thoughts on recent RBA findings.

Has COVID-19 made it harder to access finance as an SME?

Has the pandemic made it harder for SMEs to get a loan? Click to find out.

Unsecured business loan documentation: Assessing eligibility

Find out how lenders assess your eligibility for unsecured finance based on the documentation you give them.

Valiant partners with Qantas Business Rewards to support Aussie SMEs

Valiant has partnered with Qantas Business Rewards to offer members a streamlined solution to finding the right business finance. Here's how it works.

Is a merchant cash advance a good idea?

Wondering if a merchant cash advance is a good idea? Click to find out how it works, how much you can expect to pay and whether it’s right for you.

7 factors that determine your unsecured business loan interest rate

Which factors determine your unsecured finance interest rate? Click to find out.

Your guide to unsecured business loans [2020]

No time for lengthy finance applications? Unsecured finance cuts through most of the red tape—here’s what you need to know before you apply.

Which assets are best for securing a business loan?

Secured loans require assets for security, but which assets make the cut? Click to find out.

Unsecured vs secured loans: Which is best for your business?

You’ve decided: it’s time to grow your business. There’s one last call to make. Secured or unsecured finance?

How retail businesses can benefit from a Merchant Cash Advance

Grow your business with a little help from your future sales. Find out more about merchant cash advances, a unique form of business finance.

Should you refinance your business loan? Here's what you need to know

Refinancing could help you lock in a lower interest rate, on better terms. But should you do it? Here’s everything you need to know before sealing the deal.

Top 6 questions we get from clients on COVID-19

Check out the top six questions about Coronavirus we had from clients last week. Here's how Covid could impact your ability to get a loan.

Unsecured business lending: Are you eligible?

Your chances of getting approved for unsecured business finance depends on these 12 factors. Click to learn more.

Guide to franchise finance [2022]

Click here to learn about your franchise finance options, and compare loans from 80+ Aussie lenders.

What to look for in a business lender: 7 factors to consider

Choose wisely with these 7 green flags to look out for.

Time is money: What you need to know about bank business loans

Time is money. That’s why you should think twice about which bank to go with for your business loan. Or whether you should go to a bank at all...

Denied business finance? Why Aussies are turning to non-bank lenders

Denied business finance? What now? Here’s why Aussie business owners are turning to non-traditional lending solutions, and succeeding.

Top 3 reasons businesses choose secured finance

Take advantage of lower interest rates and greater borrowing power with secured business finance. Click to learn more.

5 Reasons to take out a business line of credit

A line of credit can take a huge load off your shoulders as a business owner. Click to learn why.

Unsecured vs. secured business loans: Which one is best?

Click to find out whether a secured or unsecured loan suits your business best, and easily compare finance solutions with competitive rates.

Pros and cons of unsecured business loans: Are they right for you?

Find out whether an unsecured business loan is right for your business, and compare loans from 80+ lenders.

No Collateral? Here's How Unsecured Business Loans Work

Need cash but don’t have collateral? An unsecured business loan might be your answer. Click here to learn more and make your best business move yet.

What is commercial finance and which type is right for you?

Click here to find out which type of commercial finance is right for you, and contact a product specialist to get funding, fast.

Announcing Valiant's $12.5m series B funding

Valiant Finance are pleased to announce that we have secured $12.5 million in our Series B equity funding.

Business Loan Checklist: 5 Things Every Small Business Owner Should Do

Don't get caught out. Here's your Business Loan Checklist to put you in the best position to find funding for your business.

How To Apply For An Unsecured Business Loan

Your guide to applying for an unsecured business loan and helping your business grow.

Applying for a business loan? Be ready to answer these 4 questions

Put your best foot forward by preparing strong answers to these 4 questions.

How To Find A Great Loan For Your Small Business

A little preparation goes a long way. Get ahead on the finance front with our quick tips to help you with the 3 key areas of your loan application.

How To Get Your Business Set-up on Social Media

Want to reach your customers online? Are you ready to digitise your small business? First up: get smart about social.

How To Find The Right Loan For Your Small Business

Every business is unique. Every business loan is different. What features are most important to you? Consider these 4 things before applying for finance.

5 Hidden Business Loan Fees To Watch Out For

Don't get caught out. Here are 5 hidden fees and charges that could apply to your small business loan.

How To Compare Business Loans Across The Market

You've explored your business finance options. What do you do next? How can you be sure you're comparing loans effectively and getting the best deal?

How To Unlock The Cash In Your Unpaid Invoices

Are unpaid invoices causing cashflow problems for your small business? Invoice financing may be the answer.

What is a director’s guarantee and why is everyone asking me for one?

You're applying for loans, you start getting positive responses, and suddenly you're asked for a guarantee. Don't sign until you read this!

Could Debtor Finance Solve Your Cash Flow Concerns?

Are you invoicing your B2B customers with longer payment terms? Is it hurting your cash flow? Debtor finance could be a lifesaver between payments.

Here's What Working Capital Can Do For Your Business

With so many business finance options to choose from, how do you know whether working capital is right for your business? Start by reading this.

Time To Refinance? Here's What You Need To Know

Are you ready to refinance? Reviewing your business loan every 2 - 3 years can save your SME a lot of money. Here's what you need to know.

7 Tips For Managing Business Debt

2018 is your year. Here are 7 quick tips and tricks to get back in the driver's seat when it comes to battling business debt.

19 Business Funding Mistakes To Avoid

Improve your chances of locking down the perfect business loan. Here are 19 business funding mistakes to avoid when you're applying for commercial finance.

5 must-ask questions when applying for a small business loan

Getting the best rate is all about asking the right questions. Have you done your research? Here's where to start and why.

Debt Or Equity: What's Best For Your Business?

Need to raise cash for your business? We explore the use of debt versus equity, and how to decide which one is best for your business.