Updated on 25th November 2024
Whether you have considered business finance but have a few questions or have no idea what financial solutions are available and how to access them, ScotPac is here to help.
In this blog, we cover the most frequently asked questions about business finance to help you make informed decisions and fuel your business’s success.
If you have a question not covered here, reach out to the ScotPac team today.
Business Financing FAQs
1. How does business finance work?
Business finance is an umbrella term that refers to how a company is financed. In other words, where does it get its money from?
This includes the processes and facilities used to access additional funds or raise funds above and beyond revenue or profit generation. Future revenue forecasts, budgets, fund allocation and plans related to future working capital are all part of business finance management.
2. What is equity and debt?
Businesses looking to raise finance can do so in two ways: issuing equity or taking on debt.
In simplistic terms, issuing equity revolves around raising funds by selling shares and/or other financial securities.
Debt, on the other hand, involves borrowing money from a provider, such as in the form of business loans, and repaying that debt over time (with incurred interest and possible administrative fees).
3. Why is effective business finance management important?
Having the right business plan, which includes finance management, in place is critical. Effective business finance management ensures access to working capital. Without capital, businesses cannot operate, meet their costs, hire new staff, buy new assets, capitalise on market opportunities or grow. The goal of effective business finance is to ensure the long term viability and profitability of a company. With the right finance solution, your business can succeed in a sustainable way.
4. How can a business finance purchases?
There are a few ways in which businesses can seek to finance a purchase or investment, such as new machinery or new inventory.
Business Loans
Banks, credit units, lenders and other financial institutions may offer a business loan to eligible companies. Both secured and unsecured loans are available with varying interest rates and loan terms on offer.
Secured loans are backed by collateral – such as a property put up as security – while unsecured loans are not. This generally makes secured loans easier to obtain but they come with higher potential consequences if the loan is not repaid. For more insights into secured loans and their benefits, read our article on Secured Business Lending.
On the other hand, unsecured loans do not require collateral, but they may have stricter eligibility criteria and higher interest rates. To find out if an unsecured loan is the right option for your small business, explore our guide on Unsecured Business Loans.
Asset Finance
Asset Finance allows businesses to purchase the equipment they need, whether new or pre-owned, sourced locally or from overseas. It can also be used to replace or upgrade existing assets to support business growth and operational efficiency.
Leasing
If a business has assets, including equipment, machinery or real estate, leasing these assets can help a business finance additional purchases.
Vendor Financing
Another way to finance a business purchase is through vendor financing. In other words, the vendor of the business that is being purchased brings with them financing options that help to seal the sale deal.
External Investment
Venture capital and angel investment are options for businesses at varying stages of growth. Investors provide capital in exchange for equity, which can be a good channel of working capital for new and growing businesses. In other words, they buy into the company.
For larger companies, private equity firms can offer opportunities to raise capital and will also take a share of the business’s ownership.
Grants
The Australian government offers a variety of business grants to assist companies and industries to grow, invest and expand. There are often eligibility criteria associated with particular government grants, and application forms can be complex and difficult, so it is best to consult with a professional if you are seriously considering it.
5. What is a business loan?
A business loan is a type of finance that provides businesses with funds to use in their operations, growth or debt management. The loan is an agreement between the business borrower) and a financial institution (lender) to borrow a set amount of money. This loan is repaid in instalments over time, often with interest.
These loans can be used for various purposes, such as purchasing equipment, expanding facilities, hiring employees, or managing cash flow.
6. What types of business loans are available?
The most common business loans in Australia for small to medium sized businesses looking to grow include:
- Term loans – featuring a fixed term and regular repayments.
- Lines of credit – offering flexible access within a pre-approved limit.
- Overdraft facilities – allowing businesses to withdraw additional funds.
- Equipment finance – providing funding specifically for asset purchases.
7. How do I apply for a business loan?
Every financial institution and lender have their own business loan application process.
Be sure to speak to the lender or bank you’re considering to understand their processes, eligibility criteria, requirements and expectations.
8. What are the eligibility criteria for a business loan?
As with the process, the eligibility criteria to successfully apply for a business loan will vary from lender to lender and may even vary depending on the terms of the loan.
In general, businesses will need to provide evidence regarding the age of the company itself, its revenue (including profit/loss), credit history (of both the business and the individuals applying for the loan) and some other general information, often in the form of a business plan.
If the loan is secured, there will be criteria around providing collateral to act as a financial security in case the business defaults.
To understand in detail how lenders assess your business for a loan, read our comprehensive guide on Requirements for a Business Loan: How Are You Assessed?
9. What is the interest rate for a business loan in Australia?
The interest rate varies depending on several factors:
- Creditworthiness of the business
- Market and economic conditions
- The financial health of the business
- The loan amount and loan term
- The specific industry in question
- Other lender-specific policies
Interest rates can really range quite widely across providers in the market, starting from just a few percent up to 30% and more.
10. What are the repayment terms for a business loan?
Most business loan repayment terms range from 6 months and 5 years, making them relatively short term. Like interest rates, however, this can range widely depending on the specifics of the loan agreement.
11. How long does it take to get a business loan?
It can normally take anywhere from 2 to 4 weeks to acquire a business loan from financial institutions in Australia. Traditional providers, such as banks, typically require more red tape and documentation, and have stricter criteria to assess, which can extend the process.
However, with ScotPac, you can access working capital through our financial facilities in as little as 24 hours – subject to terms and conditions.
12. What is the maximum amount a company can borrow for a business loan?
The amount a business can borrow will depend on the size of the business, its revenue, credit history and some other factors. Some business loans can be as much as $5 million, but you will need to seek professional, custom financial advice regarding the maximum amount your business can borrow.
Here at ScotPac, we offer fast and flexible business loans up to as much as $500,000.
13. What fees are associated with a business loan?
Most business loans are repaid with additional interest added on, but those aren’t the only fees associated with business loans.
Other common fees include application fees, which cover the costs of processing a loan application; origination fees, which are paid to the lender for originating the loan; processing fees for various administrative costs involved in setting up the loan; late payment fees, which are charged if a payment is missed or late; and penalty fees, which can be applied if certain loan terms are violated.
It’s important to be aware of these additional fees when considering any potential business loan, as they can impact your business’s overall cost of borrowing.
14. What documents do I need to provide to apply for a business loan?
The bank, credit union, or financial institution you’re applying to outline the exact documentation and evidence you will need to successfully obtain a loan. In general, it is a good idea to have all of your financial statements, ID documentation, business plans and tax returns ready to go from the outset to expedite the process.
At ScotPac, only minimal documents are required, which is one way we’ve streamlined, simplified and sped up the process.
15. What is Invoice Finance?
Invoice Finance is a short-term funding solution. It allows businesses to receive cash upfront for unpaid invoices they are owed. Simply put, it brings tomorrow’s payments into your business, today.
ScotPac offers up to 85% of the value of your outstanding invoices upfront, with the balance being paid once the accounts are settled – less fees. With this cash advance your business can improve cash flow, fund ongoing expenditure, and provide flexible funding options.
16. What is Trade Finance?
Trade Finance is designed to help boost your purchasing power in international trade. It can involve various financial instruments, such as letters of credit, export credit insurance, and trade bills financing. All of these solutions can help to mitigate risks and ensure smooth transactions between international trade partners by reducing the financial burden and associated risks.
To learn more about how trade finance works and how it can benefit your business, check out our guide on How Trade Finance works for importers and exporters.
17. What is Asset Finance?
Asset Finance is a form of funding that allows a business to acquire either new or pre-owned assets without the need for an upfront payment. Companies can purchase or lease assets such as equipment, machinery, vehicles, plant or technology using a facility that offers reliable working capital with the flexibility to scale as the company grows.
You can explore the benefits of Asset Finance here.
18. Should you choose a bank or non-banking lender?
Choosing a non-banking lender over a bank for business finance can offer several benefits. Non-bank lenders tend to be more flexible and agile in their ability to tailor solutions. They often offer lower interest rates and require fewer eligibility criteria to be met.
If you are a business without a strong credit history, non-bank lenders may be more willing and able to help.
However, not all lenders are equal. It’s important to research any potential lender to understand their market reputation and financial stability, as they may not be subject to the same sort of government regulations as banks.
19. What is ScotPac?
ScotPac is the largest non-bank lender in Australia. Our team of specialists bring over 35 years of experience and a stellar reputation. Currently we support over 8,500 businesses and fund $23.9 billion worth of invoices annually.
But all of that comes second to the fact that with ScotPac, clients are partners not transactions. We take the time during our comprehensive consultations to understand your business’s needs and goals. Then we tailor the right financial solution to fuel your success.
Do you have another business finance question? Ask a ScotPac lending specialist today
ScotPac is your partner for growth. We’re dedicated to finding flexible and tailored business finance solutions for all our clients across industries and throughout Australia.
If you would like to find out more about the breadth and depth of our financial facility capability or want to discover how to unlock the potential of your business, contact your closest ScotPac office today.