Aboriginal Business Loans for Indigenous-Owned Businesses

As an Aboriginal or Indigenous business owner, there are two major directions you can go down in order to receive the finance you need to help grow your business or cover any unexpected dips in cash flow. Firstly, there are bank and non-bank lenders who offer a variety of SME financing solutions to all businesses in Australia. There are no restrictions here and small business loans to Aboriginal businesses are certainly possible. Secondly, there are specifically tailored Aboriginal business loans offered by Indigenous Business Australia (IBA). It’s worth exploring both as the best option will depend on the requirements of your business and your eligibility to access the finance. We cover them all in this guide to Indigenous business loans.

Easy Application for Aboriginal Small Business Loans

We always recommend the Lend platform to kick things off with your loan application. Lend navigates the small business loan market for you and finds the lender which is best matched to your finance requirements. The application takes under 10 minutes and your credit score is not impacted until you formally choose to apply for a loan with your matched lender.

  • Use our form to get tailored business loan offers within minutes
  • Access to 50+ business lenders offering Aboriginal small business loans
  • Clear and transparent terms. Secured or unsecured financing available
  • A simple and easy process which will not impact your credit score

Indigenous Business Loans with the IBA

The IBA was created to assist and enhance the economic development opportunities of Aboriginal and Torres Strait Islander people across Australia. As part of their development program, financing for Aboriginal and Indigenous business owners is recognised as a key focus, with the aim of increasing accessibility to Aboriginal small business loans.

If your business is 50% or more Indigenous-owned, Indigenous Business Australia has a range of finance solutions that can be accessed (providing the business meets the rest of the borrowing criteria). They include:

Aboriginal Business Loans (Including Start-up Finance and Producer Offset Loan)

Business Loans

The IBA business loan is available to all Aboriginal-owned businesses, no matter what stage of the life cycle they are. Loans can be all the way up to five years and repayment terms can be up to 20 years. Businesses will have a grace period where they only have to repay interest on the loan before making interest and principal repayments later down the line.

Aboriginal Business Loans

Source: www.iba.gov.au/business/finance/business-loan/

Start-up Finance

IBA’s Start-up Finance solution is aimed specifically at businesses who have been trading for less than one year and have a turnover below $400,000. Loans are capped at $100,000 but crucially, 30% of the loan is offered as a grant providing it is used to purchase business assets. Loan terms are limited to a maximum of 7 years but just like IBA’s standard Aboriginal business loans, there is the opportunity to only make interest repayments at first and pay back the principal later down the line.

Producer Offset Loan

The Producer Offset Loan is an Indigenous business loan specifically aimed at Indigenous owned production companies to finance eligible Australian documentaries, films or television projects. The loan term is just two years but loans are available  from $100,000 to $3,000,000 and it’s possible to repay the loan from the ATO’s producer offset rebate.

IBA Invoice Finance

IBA’s invoice finance solution is exactly the same solution as that offered by other invoice finance companies. IBA will provide an advance for up to 80% of the value of your invoices, meaning you don’t have to wait the usual 60 or 90 days to receive funds. The remaining 20% (less any interest and charges) is then paid to you when the invoice gets paid. A small establishment fee and an ongoing maintenance fee applies. Unlike IBA Aboriginal business loans, we can’t see any specific benefit to opting for IBA invoice finance vs other invoice finance companies.

Performance Bonds

A performance bond gives the buyer of your product or service the assurance that the guarantor will meet the obligations of the contract if you can’t. It’s usually government department’s and major contractors that need a bond in order to be the successful bidder in a tender. Banks often require a 100% cash deposit as security for the bond but IBA require just a 20-50 cash deposit.

IBA Requirements for Aboriginal Business Loans

The major requirement to access all of the IBA finance packages is that the business has to be at least 50% owned by Aboriginal or Torres Strait Islander people.

However, on top of this, there’s a potential stumbling block, even for businesses which are at least 50% Aboriginal owned. To access an IBA package, borrowers are required to sign up to a general security agreement and provide a director’s guarantee.

A general security agreement is a contract signed between two the borrower and lender which grants the lender security interest on the assets of the business. It’s not as formal as when a lender takes a charge over a specific asset or a mortgage of your property. For example, a business can usually sell assets without the need for permission under a general security agreement, whereas under equipment finance when a charge is taken over a specific asset, you would need the permission of the lender before proceeding. It’s good that there are no requirements to secure Aboriginal business loans through IBA with property but the general security agreement could still prove a hurdle for some Aboriginal business owners if they don’t have many business assets currently within the business.

All business owners will be able to provide a director’s guarantee but this should be carefully considered before being agreed. It makes directors personally liable to repay any money the business owes lenders covered in the guarantee (see our guide to personal guarantees to learn more).

Unsecured Aboriginal Business Loans

A large number of specialist SME lenders, also known as alternate lenders or online lenders, will provide unsecured Indigenous business loans up to a certain threshold. For example, no asset security is required with Prospa to access loans up to $150,000 and Capify will offer loans all the way through to $500,000 with just a director’s guarantee required.

Other lenders like Lumi specifically advertise they can provide unsecured Aboriginal small business loans up to $300,000.

One of the key features of an unsecured Indigenous business loan is the speed in which finance can be accessed. Banks loans and loans from Indigenous Business Australia (which is ultimately a division of the Australian Government) will generally have slow turnaround times with borrowers having to provide significant documentation, such as business financials and a viable business plan, in order to be eligible. Unsecured Aboriginal small business loans are best used to cover short-term working capital requirements – for this reason, lenders prefer to analyse recent bank statements of the borrower to check their affordability to repay short-term loans.

Requirements to Apply for an Aboriginal Business Loan

When applying for an Indigenous business loan process, you’ll have to provide some basic personal information, including a valid form of ID (such as driver’s licence or passport), and information about your business (such as its registration details and ABN). You may also have to provide evidence of your financial history, an effective business plan, recent tax returns and an explanation of how you intend to use the funds.

Final Word: Loans for Aboriginal and Indigenous-Owned Businesses

Aboriginal and Indigenous-Owned businesses have access to both traditional financing routes and those offered through the Australian government’s Indigenous Business Australia. Businesses trading for under one year will benefit from accessing IBA’s Start-up Finance package as it’s routinely known that new startups find it very difficult to access finance through traditional methods. Other Aboriginal business loans with IBA are still beneficial but the benefits are less obvious compared to Indigenous business loans offered through standard SME lenders. It pays to compare options across the whole market – see what government support is available but also see what specialist SME lenders can offer. With extensive experience in understanding the pain points and demand of SMEs, they may be best placed to offer Aboriginal small business loans too.