Business Loans

Things to look for when comparing a business loan include:

• Fixed or variable interest rate
• Split loan facility (part of loan on a fixed interest rate and part on a variable rate)
• Switch facility (ability to switch interest rate between fixed and variable)
• The loan size you need
• Ability to make additional repayments to pay off your loan faster
• Redraw facility (ability to withdraw additional payments)
• Ability to make lump sum repayments to pay off your loan faster
• Portability (ability to keep the same business loan when you switch office or store locations)

Canstar uses a unique, sophisticated star ratings methodology to rate business loans. A business loan product will be rated with 1 star up to 5 stars based on how well they provide value to consumers. Products that achieve a 5-Star Rating are recognised and awarded with our Business Loans Outstanding Value Award.

Each business loan is awarded points based on two things: price and features. We use a similar methodology for all of the other categories we rate, and we encourage you to read more of them at https://www.canstar.com.au/.

Canstar researches and rates both business loans and business overdraft facilities. We recognise that business owners have different needs and wants when it comes to getting a loan or credit for their business.

A business overdraft is a line of credit that becomes available to a business when you make a withdrawal for a greater amount than the balance in your business transaction account. The bank then extends credit up to the maximum overdraft limit. Interest is charged on the fluctuating daily balance, and the overdraft balance does need to be repaid but there is no set timeframe to repay the debt.

This essentially means that a business can continue to make withdrawals when the account is empty, giving a large degree of flexibility in its cash-flow. This can be useful for paying employees or bills on time, even if your clients have not paid you yet.

As with a business loan, any debt on a business overdraft facility needs to be repaid, and interest is charged on the overdraft based on how much credit you’ve used within a certain period.

If you’re a new startup, consider our list of accelerator and incubator programs available in Australia.

Please note that these are a general explanation of the meaning of terms used in relation to business loans.

The wording of loan terms and conditions may use different phrases or terms, and you should read the terms and conditions of the relevant loan to understand the features and cost of that loan. You cannot rely on these terms to the part of any loan you may purchase.

Refer to the product disclosure statement (PDS) and Canstar’s Financial Services and Credit Guide (FSCG).

Account balance: The amount of money you have in your account.

Business loan: A loan granted to fund a business and its proceedings.

Business overdraft: A line of credit that becomes available to a business when it makes a withdrawal for a greater amount than the balance in your business’s debit account.

Fixed interest rate: A fixed interest rate remains the same for the entire duration of the loan.

Loan balance: The amount of money left to be repaid on a business loan.

Loan term: The term of the loan usually refers to the length of time the borrower has to repay the loan. This is different to the loan terms and conditions, which are a full list of the lender’s conditions in agreeing to offer a loan, including the interest rate, fees and charges, and the loan term.

Risk margin: When setting the interest rates on a business loan, lenders apply a ‘risk margin’ based on how risky it is to lend to the business. Lenders consider factors including how successful the business already, and its prospects for future success such as its location, customer base, ability to service debt, and the reason for borrowing. Learn about business loan risk margins here.

Secured loan: A loan that is backed by ‘security’ (collateral) such as the property the business owns (commercially secured) or the home the business owner lives in (residentially secured).

Unsecured loan: A loan that is obtained without security (collateral).

Variable interest rate: A variable interest rate fluctuates over time based on the RBA cash rate and the lender’s business decisions.

Our Business Products Star Ratings & Guides

• Business Loans 2022 Star Ratings
• Business Credit Cards 2023 Star Ratings
• Business Transaction & Savings Accounts 2023 Star Ratings
• Small Business Banking Award 2023 Star Ratings

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