Small business finance types compared

How the main kinds of Australian small business finance work, what they suit and what to watch for.

This table compares types of small business finance, not individual lenders. Rates and fees vary widely by lender, security, industry and trading history, so the table describes how each option is usually structured. Use the repayment calculator and the net proceeds calculator to compare actual offers.

Select a column header to sort.

Finance typeHow it worksUsually suitsWatch out for
Secured term loan (property)Lump sum repaid over a set term, secured by a registered mortgage over commercial or residential propertyLarger amounts, buying a business or premises, long-term needsYour home may be at risk if it is the security; valuation and legal costs; break costs on fixed rates
Secured term loan (business assets / GSA)Lump sum secured by a general security agreement over business assets registered on the PPSREstablished businesses without property to offerGSA may cover all present and after-acquired property; usually also a director guarantee
Unsecured business loanShorter-term loan with no specific asset as security, often with a personal guaranteeSmaller, fast working capital needsHigher rates, percentage establishment fees, daily or weekly repayments, guarantee still exposes directors
Business overdraftLimit on a transaction account; interest charged on the drawn balance, plus a fee on the limitSmoothing cash flow timing gapsLine or limit fees whether used or not; lender can review the limit; not for long-term assets
Line of credit / revolving facilityApproved limit you draw and repay as needed, separate from the transaction accountRecurring seasonal needs, stock purchasesAnnual reviews, undrawn fees, may be secured by property
Invoice finance (discounting or factoring)Advance of a percentage of approved unpaid invoices; repaid when customers payB2B businesses with long payment termsService fees plus discount charges; factoring means the financier contacts your customers; concentration limits
Equipment finance (chattel mortgage)Loan to buy a vehicle or equipment that you own from the start, secured over the assetVehicles, machinery, tools with a long useful lifeBalloon payments; asset may be worth less than the balance; GST and tax treatment depends on your situation
Finance lease / operating leaseFinancier owns the asset; you pay rent for its use, with or without a residualAssets you upgrade often or prefer off your balance sheetResidual value obligations, end-of-term conditions, early termination costs
Merchant cash advance / revenue-based financeLump sum repaid as a share of card takings or revenue until a fixed total is repaidCard-heavy retail and hospitality with short needsPriced as a factor rate; the equivalent annual cost can be very high if repaid quickly
Trade financeShort-term funding to pay overseas suppliers, repaid when goods are soldImporters and exportersCurrency risk, documentation, short terms; check Export Finance Australia for export-related support

The table is general information and does not rank lenders. Business lending is mostly outside the National Consumer Credit Protection Act 2009, so comparison rates and consumer responsible-lending rules usually do not apply; ask each lender for the total cost in dollars. Check lender details and licences on the ASIC professional registers, banking protections in the Banking Code of Practice, and dispute options at the Australian Financial Complaints Authority.