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Compare Business Loans
This guide will teach you about and help you compare business loans.
Compare business loans.
How do business loans work?
Businesses can either be lent a lump-sum payment or a revolving line of credit, which is repaid, with interest, over an agreed term (generally anywhere from three months to five years).
Business loans come as either secured or unsecured loans and typically allow businesses to borrow from around RM1,000 to RM2,000,000, though some lenders do not have limits on their borrowing amounts. Most business loans come with a fixed interest rate and you will need to make repayments on a daily, weekly or monthly basis.
Two types of business loans
- Secured business loan You will need to use an asset, generally a residential or commercial property, as security against the loan. In return, you will generally receive a lower interest rate, have the ability to borrow a larger amount and are more likely to be approved by the lender. Some lenders do not have a limit on the funds that you can borrow with a secured business loan. The amount that you qualify for will instead be determined by your asset value.
- Unsecured business loan You do not need to use an asset as security on an unsecured loan. As an unsecured loan represents more of a risk to the lender, you will generally be offered a higher interest rate and may be less likely to be approved for a loan, depending on the strength of your application. Unsecured loans can be beneficial for business owners who do not own an asset of value, or would prefer not to risk their personal or company property.
Quick guide to business loans
Am I eligible for a business loan? What’s the best loan for my business? How do I compare business loans? How do business loan applications get approved? We take you through your business loan application to help you get it across the line.
Is your business eligible for a loan?
Age of the business
You’ll usually need to have been operating for at least six months to a year for most unsecured business loans offered by alternative lenders and banks, but some do offer unsecured start-up finance. Invoice factoring and equipment loans have less stringent criteria on business age, but you’ll need to have been operating for at least one year for business overdrafts or lines of credit.
Your business may need to be making a certain amount of turnover in order to be eligible for a loan. This revenue may be monthly or yearly. Other lenders simply require you to connect your business’s accounting software or financials as part of the application process so they can calculate a loan your business can afford.
The lender may check the personal credit histories along with the company’s credit (unless you’re a start-up). If the business has unpaid defaults or tax debt, you may need to find a bad credit business loan. However, most invoice financing companies also do not require perfect credit histories.
What’s the best loan for your business?
The best loan for your business will vary depending on a number of factors, such as:
- How much money the business needs
- The nature and structure of your company
- Whether you need one large lump sum or a series of smaller cash injections
- What your business is buying/spending the money on
- Your personal circumstances/the circumstances of any other owners or directors
- Your business’s revenue
Every business is different and will therefore have different needs and requirements. Luckily, nobody understands your business better than you do – all you need is to understand your options. That’s what we’re here for.
How can you compare business loans?
Do you meet the eligibility criteria?
You can find details of the eligibility criteria involved with each loan product by on each lender’s website. Checking whether you meet the minimum eligibility criteria before you apply is the first step in your comparison process. This will help you to narrow down choices that are the most suitable for you. If you do not meet the minimum eligibility criteria for a loan, do not apply for that loan.
How much will the business loan cost?
If you know what loan you need, the next step is deciding what your business can afford. Look at your incomings and outgoings to see what you could comfortably repay without putting too much strain on the business. If it’s a loan for a start-up, you’ll need to rely on cash flow projections.
Compare business loan interest rates and fees
Once you’ve determined what you can afford to borrow, you should compare the rate and any fees or charges for a variety of business loans to find the one that represents the best value for your business.
Do the repayment terms meet your business’s needs?
Lenders offer repayment terms of varying flexibility. Some will allow you to repay daily, others weekly and some will require you to repay your loan monthly. Work out which will best meet your business’s needs in terms of your cash flow.
How do lenders judge your business loan application?
Lenders use a variety of criteria to see if you fit their risk profile and ensure your business can repay the loan.
Age and turnover of the business
Start-up finance is usually harder to find and be approved for, so if your business is established, you will find it easier to get a loan. The business turnover is also considered and lenders usually have a minimum requirement for monthly or annual turnover. They may also use your turnover to determine what the business can afford to repay.
The lender will assess the company directors’ personal credit scores as part of the application process, and if the business is established, the lender will also check the company’s credit score. Assessing credit scores allows lenders to determine how risky your business is to lend to.
Credit card volume
If you receive credit card payments in your business, lenders may use the volume of these payments to judge your ability to repay the loan. The assumption among some new lenders is that you will use this volume to repay the loan.
Similar to credit card volume, lenders may factor your accounts receivable value into their asset ratios to help them make a decision.
Lenders will check what company structure you have and how long you have been in the existing structure. If you have recently undertaken a restructure or are applying for finance in the middle of restructuring, lenders may not want to finance you at this time.
Does your business have an existing debt with another lender? This will be considered as part of your application.
For various business loans, including for example a revolving line of credit, your business will usually need to be profitable to be approved.
Other questions you may have
What should I avoid when applying for a business loan?
There are a number of mistakes that applicants make when applying for a business loan, from choosing the wrong loan option to submitting an incomplete application.
In terms of the type of loan, it’s always a good idea to try to think realistically about what would best suit the business in terms of finance volume, flexibility and repayments.
When it comes to submitting the documents, you should always understand what you’ll need to provide to the lender before beginning your application. Omitting or forgetting to submit vital information or documents may lead to an application being delayed or rejected altogether.
Why was my application rejected?
There are a number of reasons why a lender may reject a business loan application. It is important to ask for feedback from your lender if they do reject your application. This feedback will give you insight into what you did wrong, which you can improve on for the next time you apply. If the lender is unable to provide this feedback, you may want to review your application and see if you can spot any red flags yourself.
Is my personal credit file checked or my company credit file?
The lender will specify which credit history they will need to check, but generally, the lender will want to verify the company directors’ credit histories. Your business’s financials may also be checked using accounting information that you supply as part of the application process.
What business financing options are available?
Business finance is split into two main categories: debt finance and equity finance. Equity finance is provided by an owner or an external investor, whereas debt finance is provided by a bank, credit union or business lender. Below, you can find out more information about the different types of short-term and long-term business debt finance that are available.
Business line of credit
You have a set limit and can use up to that limit when you need it. Repayments are flexible as long as you keep the account in good standing.
- Draw on an account balance up to an approved limit
- Lines of credit can be secured or unsecured, and more non-traditional lenders are starting to offer them
- Interest is usually charged monthly and repayments include interest plus fees
Short-term business loan
You can get funds that you are required to pay over a set term, which is usually between 3 and 12 months.
- Repay what you owe quickly
- Repayments are usually daily or weekly to mitigate the impact on a business’s cash flow
- Interest may be charged on the principal or the outstanding amount depending on the lender, and fees may apply
This works just like a personal credit card except it’s for business expenses, and you can add multiple additional cardholders.
- Opt for personal or business credit cards to fund your business’s immediate cash flow needs
- Benefit from interest-free days, rewards and additional cardholders
- Interest can range from 8% to 20% or more if balance is not paid back monthly
If you have outstanding invoices and you need them to be paid, you can sell them to an invoice financing company and receive what you’re owed minus a fee.
- Use your outstanding invoices as finance
- Typically receive up to 85% of the invoice amount and choose which invoices you want to finance
- You’ll need to pay a percentage of the invoice amount
Business vehicle finance
This is a secured loan available for businesses of all sizes with leases also being available.
- Various types are available to sole traders as well as small- and medium-sized businesses
- Depending on the cost of the car and how it’s used, there are tax benefits available
- Repayment terms vary depending on the type of finance selected but competitive rates are on offer if the loan is secured
There are various options available to let you purchase or lease equipment.
- Options include commercial loans, equipment hire purchases, finance leases and novated leases
- Have your choice of purchase or lease depending on your business needs
- Compare costs and rates to select the right financing option for the equipment you need
Business overdrafts are attached to your business banking account and allow you to overdraw up to a specified limit on that account. You only pay interest on your outstanding balance.
- A pre-determined limit that you can overdraw up to on your business bank account
- Suitable to manage a business’s day-to-day cash flow fluctuations
- Usually comes with an application fee, line or facility fees and interest is paid monthly when the overdraft funds are used
This is a long-term business loan that allows you to borrow a set amount of money and repay it in pre-determined repayments.
- Long-term financing available to purchase a business, property or equipment
- A longer loan term of up to 10 years is usually available
- Repayments are usually made monthly with both fixed and variable rates available
Cash flow lending
This type of lending allows you to use your expected cash flow as collateral for the loan.
- Use your working capital assets as security for a loan
- Draw down on funds as required, with your cash flow determining your loan
- Interest is charged on the balance outstanding and fees may apply
This type of finance allows you to fund the purchase of goods from domestic or international suppliers.
- Various types are available, such as letters of credit or bank guarantees between the buyer and seller
- Fill large orders without putting a stop to your cash flow
- You’ll be charged interest on the amount provided for each trade as well as fees
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