Types of business lending: Compare the options

Key points

• There are different ways to access funds for your business.
• Overdrafts provide short-term cash solutions when you need it most.
• ANZ Business loans can help with your long-term needs, supporting the growth of your business.
• Asset financing can be used to purchase or lease vehicles or equipment for your business.

If you’ve decided you need to access more funds for your business, there are a few options available to you. Once you've taken the time to consider your business needs, here are some options that may help you access funds for your business.

Business overdraft

Overdrafts are flexible short-term cash flow solutions that can help with the ups and downs of business by covering trading or seasonal cash flow cycles or managing working capital, such as paying suppliers or purchasing stock. 

Unlike business loans (such as a loan for a fixed period), overdrafts usually do not have scheduled principal repayments. You can draw on the funds in your overdraft, up to the agreed limit, and make deposits when funds are available.  Because of this flexibility, there may be a higher interest rate and other fees charged.

However, you might only have to pay interest on the amount of funds drawn, not on the total funds available. If that’s the case, it’s good practice to regularly pay off your overdraft to minimise the interest you’ll pay. 

Business loan

A business loan usually has a set lending term and the principal is repaid in regular instalments throughout that term, along with the interest (unless other arrangements are made) and any fees. Compared to an overdraft, the interest rate per annum for a business loan tends to be lower because there is less flexibility with repayments. Businesses wanting more time to pay off a loan will often prefer a business loan.

If you’re considering a term loan, you might find it useful to complete a break-even calculation (template xlsx 70kB) and cash flow forecast (template xlsx 114kB)  to get a better idea of how much extra revenue you may need to generate to cover your  repayments. 

Secured vs unsecured loans         

When we say ‘unsecured’ business loan, this means you will not need to use your assets, like cash or property, as a form of security for the loan. However, the loan may still be secured by a personal guarantee from the company directors. 

Unsecured loans can be useful when you don’t want to tie your lending to your assets or if your assets are already tied to other lending or contractual obligations. But because the loan is not secured by your assets, you could pay a higher interest rate.

If the borrower of an unsecured loan is a company, the bank may take a personal guarantee from its director/s. This means that if the borrowing company fails to meet its lending obligations (like repaying the loan) the directors can be held responsible to meet the repayments.

Vehicle and Equipment Finance

If you need to borrow funds solely to purchase or lease assets that are required in the day-to-day operations of a business, Vehicle and Equipment Finance might be suitable for you. Instead of using your own cash to purchase or lease important business assets, you can borrow the relevant amount from the bank and free up your valuable capital for other cash flow needs. Often the assets that you’re purchasing or leasing can be used as security meaning you won’t have to provide additional assets as security. In some cases, you may not have to pay a deposit for the financed asset because the full amount will be paid upfront using the loaned funds.

ANZ offers Vehicle and Equipment Finance, find out more.

ANZ GoBiz

An easy way to apply online for business loans and overdrafts

ANZ GoBiz is our easy way to apply for a business loan or overdraft (as well as business credit cards and vehicle loans) online. It can provide unsecured lending of up to $500k to help businesses grow and manage their cash flow. An unsecured loan means you won’t need to provide any assets (such as a property) to secure your loan, but personal guarantees (from company directors) may be required. For vehicle finance customers, the vehicle will act as security for the loan. If you want to apply through ANZ GoBiz you’ll need to meet the eligibility criteria.  

Find out if ANZ GoBiz is right for your business.

Next steps

Chat with one of our local business bankers.