A business loan is credit provided to a business for business purposes, such as buying equipment, managing cash flow or funding premises. In Australian usage, business loan and commercial loan describe the same broad category of lending.
For a residential broker taking a business enquiry, the first assessment question changes. The lender needs to understand how the business will repay the debt from its cash flow. The loan's purpose also decides whether consumer credit law applies.
What a Business Loan Covers
A business loan funds the needs of a sole trader, partnership, company or trust operating a business. Typical uses include bridging the wait between invoices and payment, buying seasonal stock, purchasing vehicles or equipment and fitting out premises. It can also fund expansion or the purchase of the building the business occupies.
A small business loan works the same way: the lender advances funds or approves a limit, and the business repays under the agreed terms. Small and medium enterprises (SMEs) can use different facilities as their funding needs change.
Match the repayment structure to the use of the money. A temporary stock purchase needs a different repayment source from a building that the business will use for years.
Where the Money Comes From
Business lending comes from major and regional banks, specialist and non-bank lenders and private funders. For a straightforward secured file, start with banks if the client has time to complete a full assessment.
Specialist and non-bank lenders can suit unusual structures or different documentation needs. Private funders can consider time-critical transactions and deals outside mainstream policy, often at a higher cost. These tiers overlap, so compare the actual offer instead of assuming every non-bank loan will be faster.
Matching the funder tier to the client's urgency and complexity is much of the broking work. Establish the real funding deadline before choosing where to take the file.
Secured Versus Unsecured
A secured business loan pledges property, equipment or other assets that the lender can enforce against if the borrower defaults. Security can support a larger facility or lower pricing, but it puts the pledged asset at risk.
An unsecured facility is assessed on the business's cash flow without a specific property mortgage or asset pledge. Company directors can still be asked for a personal guarantee. That guarantee creates personal exposure even when the facility is described as unsecured.
Start with two questions: What security is available, and how soon does the client need the funds? Then compare limits, pricing and guarantee terms. An unsecured application may avoid a property valuation, but it still needs a workable repayment case.
Commercial Property Loans
A commercial property loan funds the purchase or refinance of business premises or a commercial investment property. An owner-occupier uses the premises for their own business. An investor relies on rent from tenants, alongside any other repayment sources accepted by the lender.
Collect the lease agreements and tenancy schedule for a tenanted property. They show who pays the rent, how much they pay and when the leases expire. Vacancies or a lease ending soon can change the lender's view of the income.
Commercial property loans generally have lower loan-to-value ratios (LVRs) than home loans, so allow for a larger deposit or additional security. The permitted LVR depends on the property and facility. A warehouse occupied by the borrower's business and a specialised investment property can receive different treatment.
The commercial property loan deposit covers the gap between the purchase price and the approved loan, with purchase costs paid separately. For a hypothetical $1 million purchase at a 65% LVR, the loan is $650,000 and the price gap is $350,000.
CommBank’s Lease Doc loan publishes a maximum 65% LVR for its commercial investment property facility. That is one product’s limit, not a deposit rule for every business loan.
Where full financial statements are unavailable, the options and supporting evidence are covered in low doc commercial loans.
What Lenders Assess
Business lenders assess whether reliable cash flow can cover existing commitments and the proposed repayments. Turnover alone does not establish repayment capacity. The business still has wages, suppliers, tax and other debts to pay.
Expect a review of trading history, the purpose of the funds and available security. Prepare two years of financial statements where available, together with recent business bank statements. Business activity statements (BAS) and interim accounts can support an assessment where the lender's policy allows them.
NAB's business finance document guide asks most businesses for two years of annual financial statements. It also identifies tax information and, in some cases, additional cash flow evidence. Directors' personal financial position and credit history can affect the decision, particularly when they guarantee the borrowing.
The difference from household servicing is explained further in residential versus commercial loan assessment.
Business Credit and Consumer Credit Law
Genuinely business-purpose credit generally sits outside the consumer credit regime under the National Consumer Credit Protection Act 2009 (NCCP Act). A mixed-purpose loan can still be consumer credit when the personal, domestic or household component predominates.
The Australian Securities and Investments Commission (ASIC) explains this boundary in Information Sheet 101, FAQs: Does the credit legislation apply? Its mixed-purpose example uses a consumer component of more than 50%. Loans to natural persons for residential investment property can also fall within the regime.
Record the actual purpose of the funds and the allocation between uses. A business label or an Australian business number does not settle the classification. For example, a sole trader buying stock and a sole trader borrowing mainly for household expenses present different credit purposes.
Before lodging, confirm that your lender accreditation and your licensee's credit appointment cover the commercial work you intend to perform. If the purpose brings the loan within consumer credit law, apply the relevant consumer credit requirements.
Facilities Beyond the Standard Term Loan
A term loan provides an amount repaid over an agreed period, but recurring cash flow needs can call for another facility.
- An overdraft lets the business draw on an agreed limit to cover day-to-day cash shortfalls.
- Equipment finance funds a specific vehicle, machine or other business asset.
- Invoice finance advances money against unpaid customer invoices while the business waits for payment.
- Trade finance funds stock or supplier purchases before the business receives the proceeds from selling those goods.
A business loan for construction can fund building work through progressive drawdowns. NAB’s commercial lending options include progressive drawdown for construction purposes. Separate a builder’s working capital need from a loan to construct premises, because the funding purpose and repayment source differ.
For example, a hypothetical wholesaler waiting for customers to pay invoices may need invoice finance. A term loan with fixed repayments could leave the timing mismatch unresolved.
Preparing an Application That Gets Approved
To apply for a small business loan, establish the required amount and funding purpose, then prepare evidence of repayment. For a business loan for a company, identify the borrowing entity and any directors providing guarantees. Submit the file through the chosen lender’s business banking team or your accredited commercial channel. A complete file helps the lender make a decision, although it cannot guarantee approval.
- Collect financial statements or the alternative BAS and accounting evidence accepted by the chosen lender.
- Add recent business bank statements so the lender can compare reported results with money moving through the accounts.
- Set out the funding purpose with amounts, quotes or purchase documents. Explain when the money is needed and how it will be repaid.
- Document the proposed security, existing debt against it and any guarantees. For commercial property, add the relevant leases and tenancy schedule.
- Review the directors' credit position with their consent and explain adverse entries before submission.
Check each business lender's own current credit policy against the completed file. Confirm the accepted borrower structure, evidence requirements and security type before lodging. Residential lending criteria do not answer those questions for a commercial facility.
Advising Business Clients Well
Explain the full cost and obligations of the proposed business loan before the client commits. Compare interest and fees across the same loan amount and expected repayment period. Include valuation and legal costs where they apply.
Read the full loan terms, including early-payout rules, security requirements and any ongoing reporting obligations. Explain what a personal guarantee exposes the director to and allow time for independent legal advice. Give a realistic timeline that includes valuation, approval and document preparation.
If you are adding business lending to your practice, start with one facility type and learn its top three funders' credit policies. Take a client enquiry from purpose and repayment evidence through to a suitable funding route before expanding into other facilities.
