Business Loans: Banks Vs. Online Lenders

If you ever wondered about the different process of applying for a business loan with a bank in comparison to an online lender? Read our Bank Business Loans Vs. Online Lender guide below to understand the advantages and disadvantages of each. You may also want to read this article about applying for a business loan explaining how different are the requirements between the two.

101: How Do Business Loans Work?

Running a business can be challenging. As a business owner, you wear many different hats. You need to be an expert marketer, product specialist, customer service agent, accountant, and more. But even if you’re working hard and running a successful business, there will be times when you need more money than you’re currently bringing in. In many cases, this is no indication of whether you’re finding financial success with your business!

In fact, many times you need more cash than you have on hand because you’ve been presented with an amazing opportunity for expansion, or you need cash flow to bridge the gap between busy seasons. It may also be that you are have had unexpected expenses that won’t necessarily impact your long-term prospects, but you do need cash at hands right now.

Whatever your reasons are, you can get access to the funds you need with a business loan.

When you think of a business loan, you typically think of the bank. Most small business go to a bank first when looking for a loan, and that’s sort of a global axiom. However, it’s important to know that you have alternatives for banks, which have their own advantages and disadvantages. While banks are absolutely a valid option, you may also have access to many  loan brokers who focus on getting small business loans to Australian small businesses. When reviewing your lending options, it’s important to understand how business loans work, and the varying business loan rates and availability between lenders.

Getting a Loan with a Bank

Many small business owners go to a bank first when applying for a business loan. You should note that some banks will only consider providing a loan to a business which is using their banking services.

Banks are easy, well known, and widespread servicing clients from around Australia whether Sydney or Melbourne. Some of Australia’s best business banks can even do A to Z onboarding online.

Banks typically require in-depth paperwork in order to get a secured business loan as a business owner in Australia, whether for vehicle finance or commercial construction. First, they need information to help them determine whether or not you can afford the loan from their institution. In the case of most banks, this means they’ll need to see copies of your financial records for at least the past two years. This includes profit and loss reports, tax returns, and balance sheets.

A bank will also typically require that you secure your loan with an asset – typically property or another high-valued item like a vehicle or an expensive machinery. That is called a collateral, and as long as the loan has not been repaid you may not sell this collateral to any third party. If you fail to pay back your loan, the bank will take possession of your collateral and sell it to repay the loan through the funds that will be received in the sale. 

They also can require a business plan, reports on your competitors, contracts you have with business suppliers, and profit and loss forecasting to determine whether you’ll be able to make future payments on your loan.

Banks also require you to have a good credit history without an excessive amount of outstanding debt. This means both your personal and professional financial history needs to be in good order (often dating as far back as five years). They’ll look at everything, including any overdue accounts, late payments on loans or bills, and more.

It’s important to note that the application process for a business loan through a bank is lengthy. It could take you between three and four weeks to gather and send all your required documents, and a month or more after that to get the approval for your loan. You should also note that in many cases you will need to use a professional to get all the documents in the right order. Such professionals include by not limited to accountants, lawyers, and business coaches. 

The above is not true for the new bank accounts available in Australia from providers like Cape, Wise and Prospa (neobanks). These are much more efficient than traditional banks in terms of onboarding and flexibility of solutions. 

Getting a Loan with an Online Lender

Your other option for getting a business loan is applying through an online lender. This process, though less common, can be much more streamlined. Many Australian online lenders who specialize in small business loans have a very fast online application process. They require fewer documents than banks do, too – typically, they only need a few financial documents, your Australian Business Number (or registration), and proof that you’ve been in business for at least 9 months (some lenders would be more tolerant for younger businesses and some would require more that 9 months, but that is sort of a rough average based on the statistics we have collected; you can check your estimated eligibility on our Become review).

Some online business loan providers may want to have access to your credit score, but unlike banks your eligibility won’t be entirely based on that. You could be financed through an online lender even if you have a bad credit score, because they often look into your current revenues and cash-flow rather than base their judgement on the credit score system which is quite archaic in essence.

In terms of collateral – most lenders will require it, and others may not. It depends on the business loan company you have decided to deal with and the state of your business. Some notable lenders that pride themselves in the provision of unsecured business loans include Capify, Prospa and GetCapital.

Some lenders specialize in working with businesses who need short repayment terms on small loans, while others specialize in working with new businesses who need a larger amount of capital to expand. The vast majority of online lenders were founded because their leadership understands that Australia is a hub for new business, and new businesses often need funds to continue to grow and improve themselves (and that banks don’t necessarily accommodate these needs in a sufficient manner).

Because of this, many online lenders have a very fast turnaround process – some even boast having your funds deposited into your account within 24 hours. There are great many online lenders to choose from, and they each have different requirements and loan amounts they approve. The important thing to remember is that you always have options.

Online Lender List in Australia






Interest Rates: Commercial Lenders Vs. Banks

As a rule of thumb, banks are often able to provide business financing at lower rates than online lenders. Part of it is due to the fact they taking less risks in that regards. They are only approving the most sustainable businesses, while online lenders are keen to take more risks for a greater return.

It does not mean that in any scenario, the bank will always beat the online lender. Not at all. The interest rates provided by online lenders are very much tailored to the specific situation of your own business. It’s always a question of risk/reward!

Which Option is Best for You?

Ultimately, everyone’s business is unique. Therefore, what you require in a business loan lender is also unique. If you require funds urgently and do not have the capacity to undergo the inspection required by banks, then online lenders could be your best option. If your main consideration is rates, then banks may be the best option for you (but not always, it’s always advisable to compare small business loans providers as well). 


Recommended Read for You: Best Small Business Lenders in Australia