Working capital
Providing additional cash flow to help meet operating expenses, inventory, wages or temporary funding requirements.
Business & Commercial
Business Finance
Business finance can support cash flow, expansion, acquisitions, equipment, refinancing and many other commercial needs. The right facility depends on the purpose, required term, business cash flow, available security and lender appetite.
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What is business finance?
Business finance is lending used to support the operating, growth or investment needs of a business.
The funding may be required for a short-term cash-flow need, a major expansion, the purchase of another business, refinancing existing debt or acquiring assets.
Unlike a standard home loan, business lending can be structured in many different ways. The appropriate facility depends on why the funds are required, how long they are needed, how the debt will be repaid and what security is available.
What can business finance be used for?
Business funding can be used for a broad range of purposes depending on the lender and transaction.
Business expansion
Funding new premises, additional staff, marketing, stock, systems or other growth initiatives.
Business acquisition
Assisting with the purchase of an existing business, subject to business performance, security and lender requirements.
Refinancing existing debt
Restructuring business loans, reviewing pricing or consolidating suitable commercial debts into a more manageable structure.
Equipment and vehicles
Financing business-use vehicles, machinery and equipment through specialised asset-finance facilities.
Property-related business needs
Funding commercial property, fit-outs, renovations or other business property requirements.
Common types of business finance
Different funding structures suit different business requirements.
Business term loan
A lump-sum loan repaid over an agreed period and commonly used for larger or clearly defined business purposes.
Line of credit
A revolving facility that allows the business to access funds up to an approved limit as required.
Overdraft
A facility attached to a business transaction account that can help manage short-term cash-flow fluctuations.
Asset finance
Specialised lending used to acquire vehicles, machinery and equipment.
Property-backed business finance
Commercial-purpose borrowing supported by acceptable property security.
Short-term business finance
Funding designed for a specific short-duration requirement where there is a clear repayment or exit strategy.
Working capital and cash flow
A profitable business can still experience cash-flow pressure where money is received later than expenses need to be paid.
Working-capital finance may help bridge timing differences between supplier payments, wages, inventory purchases and customer receipts.
The appropriate facility depends on whether the funding need is temporary, seasonal or ongoing. A short-term cash-flow gap may require a very different structure from permanent business expansion.
When might working-capital finance help?
Working-capital facilities are generally designed to support normal business activity rather than long-term capital investment.
Seasonal cash flow
Helping a business manage periods where stock or expenses need to be funded before peak-season revenue is received.
Inventory purchases
Funding additional stock ahead of expected sales.
Delayed customer payments
Providing temporary cash flow where invoices have been issued but payment has not yet been received.
Growth-related expenses
Supporting additional operating costs created by rapid business growth.
Secured or unsecured business finance?
Business finance can be either secured or unsecured depending on the lender, amount required and transaction.
Secured lending may be supported by property, vehicles, equipment or other acceptable assets. Providing security can sometimes improve available loan amounts, terms or pricing.
Unsecured business finance may be available without specific property security, but the lender may place greater emphasis on turnover, business history, cash flow and the strength of the business.
How secured and unsecured lending can differ
The right structure depends on the amount required, available security and how quickly the funds are needed.
Loan amount
Secured lending may support larger loan amounts depending on the value and type of security.
Interest rate
Pricing can be lower where the lender has suitable security, although rates vary significantly between products.
Loan term
Secured facilities may offer longer repayment periods than some unsecured products.
Application speed
Some unsecured business products may provide faster assessment where the transaction is straightforward.
Documentation
Requirements can vary from streamlined cash-flow assessment through to full business financials and property valuations.
Risk to security
Where an asset is provided as security, it may be at risk if the loan obligations are not met.
How do business lenders assess an application?
Business lenders generally want to understand both the reason for the finance and how the debt will be repaid.
The assessment may include historical financial performance, current cash flow, business turnover, existing debt, security, industry conditions and the experience of the business owners or directors.
The weight given to each factor varies substantially between lenders.
What may affect business borrowing capacity?
There is no single borrowing formula that applies to every business.
Business revenue
Turnover can help demonstrate the size and activity of the business, although revenue alone does not determine borrowing capacity.
Profit and cash flow
Lenders may assess whether business earnings provide sufficient capacity to meet the proposed repayments.
Existing debt
Current business and personal commitments can affect how much additional debt is considered sustainable.
Security
Property or business assets may improve the range of lending options available.
Business history
Established businesses may have more historical information available for assessment than newer businesses.
Industry
Lender appetite can vary depending on the industry and perceived risk of the business.
Documents that may be required
The documentation depends on the lender, loan amount and complexity of the transaction.
Business financial statements
Profit and loss statements and balance sheets may be used to assess historical performance.
Tax returns
Business and personal tax returns may be required depending on the lender.
Management accounts
Recent management accounts can help demonstrate current trading results.
Bank statements
Business transaction statements may be reviewed to understand turnover and cash flow.
ATO information
Tax obligations or statements may form part of the lender's assessment in some transactions.
Business plan or forecast
For acquisitions, start-ups or expansion transactions, forecasts and supporting business information may be required.
Business acquisition finance
Buying an established business can require finance for the purchase price, stock, equipment, working capital or related transaction costs.
Lenders may examine the historical profitability of the business, purchaser experience, business valuation, proposed debt level and available security.
The structure can vary considerably depending on whether the transaction includes commercial property, equipment or goodwill.
What can matter when financing a business purchase?
A lender will generally want to understand both the business being acquired and the buyer.
Historical performance
Past profitability and cash flow may be reviewed to assess the ability of the business to support the proposed debt.
Purchase price
The lender may consider whether the price is supported by the financial performance and assets of the business.
Buyer experience
Industry and management experience can strengthen an application, particularly in specialist businesses.
Equity contribution
The buyer may need to contribute part of the purchase price from their own funds.
Security
Business assets, commercial property or other acceptable security may support the transaction.
Working capital
Funding may also be required to ensure the business has sufficient cash flow after settlement.
Refinancing business debt
Business lending should be reviewed periodically, particularly where the business has grown, property values have changed or several different facilities have accumulated over time.
Refinancing may help restructure repayment terms, review pricing, consolidate appropriate debts, change security or move to a lender whose policies better suit the business.
Any exit fees, break costs, establishment costs and changes to the loan term should be included when comparing the benefit of refinancing.
Interest rate is only part of the cost
Business finance products can include very different fee structures.
A facility may include application fees, establishment fees, risk fees, line fees, annual fees, valuation costs, legal costs or early repayment conditions in addition to the interest rate.
For short-term lending in particular, a lower interest rate can sometimes be less important than large upfront or non-refundable fees.
What should be compared between business lenders?
A proper comparison should consider the complete facility.
Interest rate
Consider the expected interest cost over the period the facility is likely to remain outstanding.
Establishment costs
Application and establishment fees can vary significantly between lenders.
Ongoing fees
Some facilities include annual, monthly or line fees.
Loan term
A longer term may reduce repayments but can increase the total interest paid.
Early repayment conditions
Minimum interest periods, break costs or discharge fees can affect the real cost of shorter-term lending.
Flexibility
Redraw, revolving limits, additional repayments or access to future funding may matter depending on the business.
Why lender selection matters
Business lenders can have very different policies and appetites.
Industry appetite
A lender that is comfortable with one industry may be reluctant to fund another.
Business age
Some lenders require an established trading history while others may consider newer businesses.
Documentation requirements
The amount of financial information required can vary considerably between lenders.
Security requirements
Some lenders may require property or other assets while others may consider cash-flow-based lending.
Loan size
Different lenders specialise in different transaction sizes.
Pricing and structure
Rates, fees, loan terms and repayment structures can vary substantially.
How I compare business finance
My role as a mortgage and finance broker is to understand what the business needs the funding for before comparing lenders.
That means reviewing the amount required, purpose, cash flow, available security, required loan term, repayment strategy, interest rate and all applicable fees.
The most suitable facility is not necessarily the one with the lowest advertised rate. It is the one that appropriately supports the business requirement at an acceptable overall cost.
A typical business finance journey
The process varies depending on the lender and transaction, but business finance commonly involves these stages.
- 1
Clarify the funding need
Determine how much is required, what the funds will be used for and when they are needed.
- 2
Review the business position
Assess business cash flow, financial performance, existing debt and available security.
- 3
Choose the facility structure
Consider whether the requirement is better suited to a term loan, revolving facility, asset finance or another form of business lending.
- 4
Compare lenders
Identify lenders whose business appetite, documentation requirements, pricing and terms suit the transaction.
- 5
Prepare the application
Provide the required financial and supporting information.
- 6
Credit assessment
The lender reviews the business, transaction and any proposed security.
- 7
Approval and funding
Review the final terms and costs before completing the facility.
Business finance questions
What can a business loan be used for?
Business finance may be used for working capital, expansion, acquisitions, refinancing, equipment, property and many other legitimate business purposes, subject to lender requirements.
How much can my business borrow?
The amount depends on business cash flow, profitability, existing debt, available security, the loan purpose and lender policy.
Do I need property security for a business loan?
Not always. Secured and unsecured business finance options are available, although the amount, rate and terms may differ.
Can I get business finance without full financial statements?
Some lenders offer streamlined or alternative-documentation business lending, but eligibility and evidence requirements vary.
Can a business loan be used for working capital?
Yes. Working-capital facilities can help manage inventory, wages, seasonal requirements and timing gaps in business cash flow.
Can I finance the purchase of a business?
Potentially. The lender may assess the financial performance of the business being purchased, buyer experience, equity contribution and available security.
Can I refinance existing business loans?
Yes, subject to lender requirements. Refinancing can be used to restructure debt, review pricing, change loan terms or consolidate appropriate facilities.
Are business loan rates higher than home loan rates?
Business lending is priced differently and depends on the loan purpose, security, business strength, term and lender risk assessment.
How long can a business loan run for?
Loan terms vary considerably depending on the facility type, purpose, security and lender.
What fees apply to business finance?
Depending on the lender, costs may include application, establishment, risk, line, valuation, legal, annual or early repayment fees in addition to interest.