How to get the best deal on your small business loan (Updated 2019)

You need business finance, and you want to get the best possible deal.

Of course you do!

Business finance can be very expensive, so the last thing you want is to pay more than you have to.

A business loan could give you the cash you need to pursue an exciting opportunity – or simply to keep your business afloat during the lean times. But if the cost of finance is too high you could end up in serious financial difficulties. At the very least, you could do some damage to your credit record if you fall behind on payments.

Loan Purpose Illustration

But there are so many lenders out there, and so many business loans on offer. How do you compare loans to make sure you get the best possible deal?

I’ll tell you.

Basically, it comes down to research. I’m afraid you can’t afford to cut corners if you want the best deal – but there are some really great tools you can use to make the process easier.

First, though, there’s an important step you’ll have to take.

Why you must start with a business case

There are so many types of debt finance to consider that you could spend weeks exploring all your options. But actually, many of those won’t work for you.

For example, if you’re looking for fast cash for a short time, the last thing you want is to lock yourself into five years of loan repayments. But if you’re buying something big, like a competing business, you’ll need to borrow a large sum and have plenty of time to pay it back. The needs of your business will dictate what kind of loan you need, so when you prepare your business case, you’ll be able to rule out some types of finance immediately.

A business case will also help you work out how much you can realistically afford to borrow, how quickly you’ll be able to pay it back, and what rate of interest you can afford to pay.

This will also help you narrow down your options when you start comparing business loans – for example, if you know you’ll need 18 months to repay your loan, you can disregard lenders who only offer loan terms of 3 – 12 months.

Above all, a business case will help you decide if borrowing is the right choice for your business at this time. It could be that the costs simply outweigh the benefits, and it’s much better to find that out before you lock yourself into an expensive business loan!

If you decide to go ahead, though, it’s time to start comparing business loans.

So where do you start?

1

Compare business loans online

Comparing Lenders Illustration

You could begin with a Google search for small business loans, then follow each link to find out what different lenders are offering. But you’ll need a lot of time on your hands!

You can save yourself a lot of time and effort, though, by using a business loan comparison service, to find out what loans are on offer and roughly how much you can expect to pay.

This is a great way to compare interest rates and basic costs like set-up charges and annual fees. It’s also the easiest way to find out which lenders are offering the type of loan you need, since each lender will have different requirements – for example:

  • Minimum turnover (varying from $5,000 per month to $200,000 per year)

  • Minimum period you’ll need to have been in business (generally six to 12 months)

  • Minimum and maximum loan amounts

  • Minimum and maximum loan terms

The comparison site will ask you basic information about your business and your requirements, so it can rule out any lenders whose criteria you don’t meet – making it easy to narrow down your options.

Compare Unsecured Business Loans

Type Time to Funding Term Interest
Unsecured Business Loans same day 1-24 months Highest
Line of Credit 2-7 days 6-24 months High
Credit Card 2-5 days Revolving High
Invoice Finance 2-10 days 3-12 months % of invoice
Bank Finance Up to 3 months 1-5 years Competitive
Short Term Business Loan 1-10 days 0-24 months High
Type Time to Funding Term Interest
Unsecured Business Loans same day 1-24 months Highest
Line of Credit 2-7 days 6-24 months High
Credit Card 2-5 days Revolving High
Invoice Finance 2-10 days 3-12 months % of invoice
Bank Finance Up to 3 months 1-5 years Competitive
Short Term Business Loan 1-10 days 0-24 months High
2

Dig deeper

Dig Deeper Illustration

Once you’ve found some promising business loan options, you’ll need to find out more about each loan. The truth is that the advertised interest or factor rate is just a starting place, and the actual amount of interest you’ll be charged will depend on how risky the lender considers your business to be.

What’s more, there are often additional costs you’ll need to factor in – from ‘establishment’ fees (i.e. set-up costs) to monthly service fees and even transaction costs. (You may be shocked to find they’ll charge you $10 to process every repayment you make. If you’re making payments fortnightly, that’s an extra $260 a year!) Although, not all lenders charge additional costs.

Then there’s another cost to watch out for – early repayment penalties:

  • If you’re taking out a loan where the interest is calculated as a factor rate this won’t be relevant – interest will be calculated on the full opening balance of your loan, rather than on the reducing balance, so you’ll pay the same amount no matter how quickly you repay it.

  • If you’re paying an APR instead, then paying off your loan more quickly could potentially save you a lot of money, especially on a longer-term loan or one with variable interest rates. Some lenders will protect their profits by charging a hefty break fee, which will wipe out any benefit you could get from paying your loan off more quickly.

You also need to take a close look at the terms and conditions of the loan to make sure there are no restrictions that could cause your business problems (for example, a requirement that you don’t offer credit terms to your customers for the duration of the loan).

You need to get all this information on each of the loans you’re interested in so that you can properly compare them.

Even if you’ve narrowed your choices down to four or five loans, that still sounds pretty complicated right?

Well, I have good news.

There’s a new tool that makes comparing business loans much easier!

At the start of this year, Australia adopted a new loan comparison tool.

SMART Box has been around for a while – it’s been available in America since 2016 – but it’s part of a new commitment by many Australian fintech lenders to be more transparent and fairer to SMEs.

SMART Box is a simple form that lenders use to provide clear information about the true cost of a loan. It shows the full cost – including built-in fees – as a factor rate and an APR, and shows exactly how much you’ll have to repay each month. This means that you can easily compare the full cost of different loans, even if they have different repayment terms and the interest is calculated in different ways, as it uses a standardised language.

SmartBox Form Example

So once you’ve used a comparison site to figure out which loans look most promising, you can ask the lenders to provide you with the SMART BoxTM information about the specific loan and make a full comparison to see which loan will give you the best deal.

If all this still sounds like too much hassle, there’s another option!

Get a business loan broker to do the work for you!

A reputable business loan broker will take care of all the research for you and should be able to tell you about any special offers or discount rates you may be able to take advantage of.

They should also help you find the lender which is the best fit for your business, and there can be real benefits to building a long-term relationship with a finance provider, especially if you expect to need more funding in future.

Be sure to choose an independent business loan broker that isn’t tied to just one or two lenders, so that they can give you broad, unbiased information about your options. Make sure they’re up-front, too, about how they receive commissions from lenders and any fees they charge for their services.

Conclusion

There are so many lenders offering small business loans that there’s only one way to make sure you’re getting the best deal – research.

The good news is that there are some great resources available to help you, including online business loan comparison services, and the new SMART Box tool mentioned above.

These make it much easier to discover which lenders are offering what you need and compare exactly how much you’ll have to pay for different business loans.

If research isn’t your thing, there’s another way to get the best deal on your business loan – engage a business loan broker to do it for you.

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