Business Loans 101: How to Secure Funding for Your Startup or Small Business

February 20, 2024
minutes to read
Jaala Alex
Table of Contents

Starting a successful business requires many things to go right – from a solid idea to a great team - but securing financing can often be the critical element that can give a new business the edge. With the right access to capital, you can take advantage of emerging opportunities and overcome many obstacles. However, navigating the world of finance and finding the right business loan can be tricky, especially for those new to the process. That's why we've compiled this comprehensive guide to help you understand how small business lending works and how to apply for a loan. We'll also cover the different types of loans available, other forms of business financing, government lending options, and how accounting and bookkeeping can help you secure funding.

How Small Business Lending Works 

Small business lending usually involves a bank or business lender lending money to a small business to support its operations or growth. Before deciding to issue a loan, the lending institution will assess the creditworthiness and risk of the business. For the privilege of borrowing money, the small business will repay the load over a period of time with interest. The interest charged is how the lender makes money in return for offering finance. 

Several types of lenders offer small business loans, including traditional banks, online lenders, and alternative lenders. Traditional banks generally offer lower interest rates and longer repayment terms but may also have stricter lending requirements. Banks can offer cheaper rates because they have access to customer deposits and other revenue streams that generate income. On the other hand, online and alternative lenders may have higher interest rates and shorter repayment terms but tend to offer a better customer experience and faster application and approval processes. 

Applying for a small business loan can be an intensive process. You'll need to provide information about your business's financial history and performance, including revenue, expenses, cash flow, and credit history. You'll also need to provide personal financial information, such as your credit score and history, and may need to provide collateral to secure the loan. Collateral is an asset such as a property that a borrower pledges as security for a loan, which the lender can seize if the borrower fails to repay the loan.  

Once your application is submitted, the lender will review your information and may request additional documentation or clarification before making a decision. If approved, you'll receive the funds and must make regular payments on the loan, including both principal and interest. Principal refers to the initial amount borrowed or invested, while interest is the additional amount paid or earned for borrowing or investing that principal.

Securing a small business loan depends on having good financial records, which is the benefit of having an automated financial management platform like Thriday. With all your bank transaction data categorised, receipts, BAS and payments recorded in one place, you can confidently navigate the process. In the next section, we'll cover the steps to apply for a small business loan in more detail. 

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How to Apply for a Small Business Loan 

When you want to apply for a small business loan, it's important to be prepared and organised to increase your chances of approval. Here are the steps to follow when applying for a small business loan: 

  1. Confirm loan amount: Start by assessing your business's financial needs and determining the financing you require. Consider your business's size, revenue, repayment ability, and goals to choose the correct loan amount for your needs. 
  2. Review your credit history: Check your credit score with a service like Equifax and review your credit report to ensure accuracy and identify any potential issues that need to be addressed before applying for a loan. 
  3. Gather financial documents: Collect all relevant financial records, including tax returns, profit and loss statements, bank statements, and any other financial statements. With an automated accounting tool like Thriday, all of this can be provided with a click of a button. 
  4. Develop a business plan: A comprehensive business plan can help lenders understand your business's operations and growth potential. Include details on your market, competition, revenue streams, and projections for growth. 
  5. Research lenders: Consider traditional and alternative lenders to find the best fit for your needs. Review their lending requirements, interest rates, and loan terms. Please note that many business lenders require at least six months of trading history before considering an application.  
  6. Submit your application: Complete the lender's loan application, including all required documentation, and submit it for review. Be prepared to provide additional information or clarification as requested by the lender. 
  7. Wait for approval: Once your application is submitted, the lender will review your information and decide on your loan application. This process can take several hours (for non-bank lenders) to several weeks, depending on the lender and the complexity of your application. 

By following these steps and being prepared throughout the process, you can increase your chances of securing a small business loan that meets your needs. In the following section, we'll cover the requirements for applying for a small business loan in more detail. 


Different Types of Small Business Loans 

When it comes to small business loans, there are a variety of options to choose from. Here are some of the most common types of small business loans: 

  • Term loans: A term loan is a traditional type of loan in which a lender provides a fixed amount of funding, which is repaid with interest over a set period. This is a popular option for businesses financing a large purchase or long-term investment. 
  • Line of credit: A business line of credit is a flexible form of financing that provides access to a set amount of funds that can be borrowed as needed. Interest is only paid on the amount borrowed, making it a cost-effective option for short-term financing needs. 
  • Invoice finance: Invoice financing allows businesses to borrow against outstanding invoices, providing immediate access to funds that may otherwise be tied up in accounts receivable. This is a valuable option for companies that have unpaid invoices and need to improve cash flow. 
  • Overdrafts: An overdraft is a credit facility a bank provides that allows an account holder to withdraw more money than they have in their account up to a predetermined limit. 
  • Credit cards: Business credit cards can provide a convenient source of financing for small expenses or unexpected costs. These cards often offer rewards programs and other benefits but can have high-interest rates and fees. 

It's important to carefully consider your options and choose the right loan or credit product that best fits your business's needs and financial situation. We'll now cover some other forms of business loans and credit that are more industry or business specific. 


Other Forms of Business Loans and Credit 

In addition to traditional loans and SBA loans, there are a variety of other forms of business loans and credit that small business owners may want to consider. Here are a few examples: 

  • Equipment finance: Equipment financing allows businesses to purchase or lease equipment needed for their operations, with the equipment itself as collateral. This can be a useful option for businesses such as farmers who need to acquire expensive equipment but don't have the cash to do so. 
  • Buy now, pay later: Buy now, pay later financing allows businesses to purchase goods or services on credit, with the option to defer payment until later. This can be a good option for businesses that need to make a large purchase but want to avoid tying up cash flow in the short term. 
  • Crowdfunding: Crowdfunding via platforms like Birchal allows businesses to raise funds from many individuals online. This can be a good avenue for companies looking to fund a specific project or product launch. 


Government Forms of Lending 

In addition to traditional bank loans and alternative forms of financing, eligible small business owners in Australia can take advantage of government-backed loans. These loans are designed to fund small businesses that may not qualify for traditional financing or may need additional support to grow and expand. Here are a few examples of government forms of lending available in Australia: 

  • Accelerating Commercialisation: This initiative by the Australian government aims to help entrepreneurs, startups, and small businesses turn their innovative ideas into successful commercial ventures. The program provides funding, expert advice, and networking opportunities to assist eligible businesses in the early stages of product development, commercialisation, and market entry. The program offers grants ranging from $50,000 to $1 million to support innovative ventures. The grants are provided on a matched funding basis, meaning the business must contribute at least 50% of the project costs. 
  • R&D Tax Incentive: The Research and Development (R&D) Tax Incentive is an initiative by the Australian government that aims to encourage and support business research and development activities. The program provides a tax offset for eligible companies that invest in R&D activities, helping reduce innovation costs and increase competitiveness. A company must conduct eligible R&D activities involving experimentation, testing, or analysis to develop new or improved products, processes, or services. The program covers various industries and sectors, from agriculture to technology, and offers a generous tax offset of up to 43.5% for eligible R&D expenses. 
  • Export Finance Australia: Export Finance Australia (EFA) is the Australian government's export credit agency. It provides various financial solutions to help Australian businesses overcome the financial barriers to exporting. These solutions include loans, guarantees, bonds, and insurance. The amount of funding available can range from a few hundred thousand dollars to several hundred million dollars, depending on the complexity and size of the transaction. Export Finance Australia works closely with businesses to understand their needs and provide tailored solutions to help them grow and succeed in international markets. 
  • Clean Energy Finance Corporation: The Clean Energy Finance Corporation (CEFC) is a government-owned investment bank that focuses on investing in clean energy and energy efficiency projects. The CEFC provides a range of financing options, including loans, leases, and equity investments. 

Government-backed loans can be an excellent option for small business owners in Australia who have trouble accessing traditional financing or need additional support to grow their businesses. However, it's important to carefully review the terms and requirements of each loan program before applying to ensure that it's the right fit for your business's needs. In the next section, we'll cover some common FAQs about small business lending. 


Small Business Lending FAQs 

What is the typical interest rate for a small business loan? 

The interest rate for business lending in Australia varies depending on the lender and the loan or credit facility type. Generally, interest rates range from 5% to 25% per annum. 

What is collateral, and why is it important for small business loans? 

Collateral is an asset or property that a borrower pledges as security for a loan. If the borrower cannot repay the loan, the lender can seize the collateral to recoup their losses. Collateral is important for small business loans because it helps to reduce the lender's risk and increase the borrower's chances of approval. 

What is the difference between a business loan and a business line of credit? 

A business loan is a lump sum of money borrowed and repaid over a set period, typically with fixed payments and interest rates. On the other hand, a business line of credit is a revolving credit line that allows the borrower to draw funds up to a preapproved limit as needed. The borrower only pays interest on the funds they have drawn and can repay and redraw funds as required. 

How can accounting and bookkeeping help me get approved for a small business loan? 

Having accurate and up-to-date financial records can be a key factor in getting approved for a small business loan. Lenders will often review a business's financial statements, including income statements and balance sheets, to assess the business's financial health and ability to repay the loan. Automated accounting and bookkeeping software like Thriday can help small business owners to stay on top of their finances and provide the necessary documentation to support their loan applications. 

Are there any government grants available for small businesses? 

Yes, some government grants are available for small businesses in certain circumstances. However, these grants are typically highly competitive and may have strict eligibility criteria. Small business owners should carefully research and review the available grant programs before applying. Additionally, many other forms of government support are available to small businesses, such as tax incentives, loans, and advisory services. 


By understanding the basics of small business lending and exploring the options available, small business owners can make informed decisions about their financing needs. Whether seeking a traditional bank loan, exploring alternative financing, or applying for government-backed loans, it's essential to carefully review the terms and requirements of each option and work with trusted advisors to determine the best fit for your business's needs. 


How Accounting and Bookkeeping Can Help You Get Business Finance 

Keeping accurate financial records is crucial to running a successful small business. Not only does it help you understand your business's financial health and make informed decisions but it can also improve your chances of securing business finance. Here are some ways that accounting and bookkeeping can help: 

Demonstrating Financial Stability 

When applying for a business loan or other type of financing, lenders will often review your financial statements to assess your business's financial stability and ability to repay the loan. Accurate and up-to-date financial records can help demonstrate that your business is financially stable and has a strong track record of managing finances responsibly. This can increase your chances of approval and result in more favourable loan terms. 

Providing Documentation 

In addition to demonstrating financial stability, having detailed financial records can provide the documentation lenders require to approve your loan application. This may include income statements, balance sheets, and tax returns. Keeping organised and up-to-date records can streamline the loan application process and ensure that all required documentation is readily available. 

Identifying Opportunities for Cost Savings 

Reviewing your financial records helps you identify areas where you may be able to cut costs and improve your bottom line. This can include reducing expenses or finding ways to increase revenue. By proactively managing your finances, you can position your business for financial growth and success. 

Improving Cash Flow Management 

Cash flow is a critical aspect of small business financing, and poor cash flow management can make it difficult to secure funding or maintain a healthy business. Accounting and bookkeeping can help you stay on top of your cash flow by tracking incoming and outgoing payments, monitoring accounts payable and receivable, and identifying potential cash flow issues before they become significant problems. 

Enabling Data-Driven Decision Making 

Finally, having accurate financial records can enable data-driven decision-making in your business. By analysing financial data and trends, you can make informed decisions about where to allocate resources, which investments to make, and how to manage your finances for long-term success. This can improve your chances of securing financing and position your business for growth and profitability. 

Overall, accounting and bookkeeping are critical components of small business financing. By keeping accurate records, providing necessary documentation, identifying cost-saving opportunities, managing cash flow, and making data-driven decisions, small business owners can improve their chances of securing financing and positioning their businesses for long-term success. 

Securing financing is a vital step in the success of any small business. Whether you are looking to start a new business, expand an existing one, or manage cash flow, there are various options available for small business lending. By understanding the different types of loans and financing options available and the requirements for application and approval, you can increase your chances of securing the financing you need to achieve your business goals. Always consider factors such as interest rates, repayment terms, and fees when evaluating different types of loans and always read the fine print before signing any agreement. 

At Thriday, we understand small business owner's unique needs and challenges, so we offer a range of banking, accounting and tax tools designed to meet those needs. Whether you're looking for a small business loan, line of credit, or other financing solution, our all-in-one platform will quickly give you all the reports and information you require to apply for funding. 

DISCLAIMER: Team Thrive Pty Ltd ABN 15 637 676 496 (Thriday) is an authorised representative (No.1297601) of Regional Australia Bank ABN 21 087 650 360  AFSL 241167 (Regional Australia Bank).  Regional Australia Bank is the issuer of the transaction account and debit card available through Thriday. Any information provided by Thriday is general in nature and does not take into account your personal situation. You should consider whether Thriday is appropriate for you.

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