Article

How to choose the right business loan for growth

Learn how to choose the right business loan for growth with expert guidance on loan types, cash flow analysis, and repayment terms to fuel your business expansion.

Whether you’re planning to expand into a new location, upgrade equipment, boost inventory, or invest in marketing, having access to the right funding at the right time can make all the difference. With so many options available in today’s market, from term loans to lines of credit and equipment finance, it’s critical to match the loan type and terms to your specific business goals. Here’s how to evaluate your options and make the smartest financing decision for long-term business success.

Start with a goal in mind

Before you start comparing lenders or rates, you need to get clear on why you’re borrowing in the first place. Different goals will suit different types of finance.

If you’re purchasing a vehicle or machine that has a tangible lifespan, equipment finance or a chattel mortgage might be ideal. If you’re funding a short-term working capital gap, like seasonal inventory or a one-off marketing campaign, a line of credit or business overdraft may be more appropriate.

On the other hand, if you’re expanding into a second location or hiring staff to scale your operations, a business term loan with fixed repayments over 3 to 5 years could help fund that medium-term growth.

The key is aligning the loan term with the lifespan or return of what you’re investing in. Don’t use a five-year loan for a six-month project, or you’ll still be paying it off long after the benefit has passed.

Understand your cash flow

Your ability to repay the loan consistently is just as important as your business goals. Many businesses run into trouble not because they lack revenue, but because cash flow timing doesn’t match their loan obligations.

Start by reviewing your last 12 months of bank statements and financials. How stable is your cash flow? Do you have seasonal fluctuations? Can your business comfortably handle fixed repayments?

Some lenders offer flexible repayment terms, including interest-only periods or seasonal repayment options to better match your income cycles. Others may offer revolving facilities that let you draw and repay funds as needed.

Choosing the right repayment structure is essential to avoid shortfalls, particularly during slower months. If in doubt, consult your accountant for help modeling different scenarios.

Compare loan types

It’s tempting to focus only on interest rates when comparing lenders. But as with any financial product, the cheapest offer isn’t always the best.

Different loan structures come with different pros and cons. For example:

  • Secured loans generally have lower rates but require an asset (like property or equipment) as collateral.
  • Unsecured loans offer quicker access to cash but typically come with higher rates or shorter terms.
  • Lines of credit offer flexibility but may require discipline to manage effectively.

Also consider factors like establishment fees, early repayment penalties, redraw facilities, and balloon payments. These can all affect the true cost of the loan over time.

Work with a broker

Choosing the right business loan for you and your business can be complex, especially when juggling multiple providers, structures, and repayment options. That’s where a finance broker or adviser can help. A good broker will take the time to understand your goals, assess your financials, and compare a wide range of options to match you with the right solution.

Further questions

What factors should I evaluate when comparing different business loan options?
When comparing business loans, look beyond just interest rates. Evaluate the loan structure including whether it's secured or unsecured, repayment terms and flexibility, establishment fees, early repayment penalties, redraw facilities, and balloon payments. Secured loans typically offer lower rates but require collateral, while unsecured loans provide quicker access but at higher rates. Consider factors like seasonal repayment options if your business has fluctuating cash flow, and whether the lender offers revolving facilities that allow you to draw and repay funds as needed.
How do I determine the right loan term for my business needs?
Align your loan term with the lifespan or return period of what you're investing in. For tangible assets like vehicles or equipment, choose equipment finance or chattel mortgage with terms matching the asset's useful life. Short-term needs like seasonal inventory or marketing campaigns suit lines of credit or business overdrafts. Medium-term growth initiatives like location expansion or staff hiring work well with 3-5 year business term loans. Avoid mismatched terms like using a five-year loan for a six-month project, as you'll continue paying long after receiving the benefit.
Why is cash flow analysis important when choosing a business loan?
Cash flow analysis ensures you can consistently meet repayment obligations without straining your business operations. Review 12 months of bank statements and financials to understand your cash flow stability and seasonal fluctuations. Many businesses fail not from lack of revenue, but because repayment timing doesn't align with income cycles. Choose repayment structures that match your cash flow patterns, such as seasonal repayment options for businesses with fluctuating income, or interest-only periods during slower months to maintain financial stability.
What are the main differences between secured and unsecured business loans?
Secured business loans require collateral such as property or equipment, which typically results in lower interest rates and potentially larger loan amounts. However, you risk losing the asset if you default. Unsecured loans don't require collateral, offering quicker access to funds and simpler application processes, but generally come with higher interest rates, shorter repayment terms, and lower borrowing limits. Your choice depends on your risk tolerance, available assets for security, and urgency of funding needs.
When should I use a finance broker for business loan selection?
A finance broker becomes valuable when dealing with complex borrowing needs, multiple loan structures, or when you lack time to research numerous lenders. Brokers understand your business goals, assess your financials, and compare options across multiple providers to find suitable solutions. They're particularly useful for businesses with unique circumstances, seasonal cash flows, or specific industry requirements. A good broker can also help navigate different repayment structures, negotiate terms, and streamline the application process, potentially saving time and securing better terms than approaching lenders directly.

This is general information only and is subject to change at any given time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.

Why choose Attain Loans?

Welcome to Attain Loans. I'm Chrystal, the founder, and I've dedicated my career to mortgages and loans. With over two decades of experience in finance, I've developed a passion for helping people secure their financial future. I established Attain to share my expertise and ensure you access the most competitive deals available. My goal is to make the often complex world of mortgages and loans both understandable and beneficial for you.

Chrystal Evans, founder of Attain Loans and Mortgages Altona

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