An Essential Guide to Understanding Commercial Loans

An Essential Guide to Understanding Commercial Loans

As experienced mortgage brokers in Australia, we have observed that many ambitious Australians dream of becoming their boss, but like all good things, it  

requires a lot of hard work and comes with some costs. Do you wish to expand your  

business or improve cash flow? Then you should look into  

commercial loan options. 

However, there are numerous factors to consider when taking out a loan, including  

eligibility criteria, fees, features, loan structure, collateral, and repayments. Before you  

begin your loan application, read through this comprehensive guide to 

commercial loans.  

It explains all of the fine print and what to look out for when applying for the best commercial loan in Australia

Is a Commercial Loan Required? 

Before taking out a commercial loan, as with any other type of credit, you should carefully consider your financial  

situation.  

In this case, you should consider the state of your business, whether it is well-established or just getting started, as well as your finances.  

If you do the necessary calculations and discover that you can’t pay down the principal amount you want  

to borrow while also leaving room to pay off interest (which may fluctuate if you choose a variable rate), you may be unable to obtain a commercial loan. Check whether you can opt for one of the best commercial property loans if you have any such property. 

How Do Commercial Loans Work? 

Commercial loans are typically offered as a lump sum payment or as an ongoing line of credit that can be accessed whenever needed, similar to a credit card. When you take  

out a loan, you agree to repay the amount plus interest on top of the principal plus any  

set fees over a specified period. 

Because the purpose of commercial loans varies greatly, repayment periods for smaller amounts could be as short as a few months or even weeks, while repayment periods for larger loans could last decades.  

Smaller loans paid over shorter terms may require fortnightly, weekly, or even daily 

repayments. Larger loan amounts will function more like a home loan, with monthly or  

annual payments. 

You’ll typically have the option of choosing between a fixed and variable commercial  

loan.  

With the former, your interest rate should remain constant throughout the term of the  

loan, whereas with the latter, it can change depending on market conditions.  

Similarly, you must choose between a secured and an unsecured commercial loan, which  

influences the interest rate and loan structure. 

What Kinds of Commercial Loans Are There? 

While the size of the loan, the interest rate charged, the time it takes to repay, and the  

the purpose for which it is used will vary depending on the business, there are two ways to structure the loan: as a secured or unsecured loan. 

Secured commercial loans require you to put up collateral to offset the lender’s risk in  

providing credit.  

This is usually in the form of a substantial asset such as residential or commercial real  

estate, a substantial savings fund, or even the business itself.  

Because there is the added assurance that repayment can be drawn from another  

source if you are unable to make it, secured loans typically have a higher maximum loan 

values, longer repayment terms, and lower interest rates. 

Because unsecured loans do not require collateral, they typically have lower maximum  

loan amounts and higher interest rates because lenders are taking on more risk.  

However, if you need a small loan to cover a short-term need, this could be a good option because unsecured loans are usually easier to  

set up.  

These applications are frequently measured in hours rather than weeks, as a secured  

the commercial loan application can be. 

Keep in mind that even an unsecured loan may require you to make a personal  

guarantee if the business defaults on repayments, as lenders may require you to do so upon application. 

How to Investigate Your Loan Options? 

As previously stated, finding a commercial loan that meets your needs will be largely  

determined by what you hope to achieve with the funding and your ability to make  

repayments.  

With that in mind, there are some important factors to consider when looking for the  

best deal. 

Interest rates on commercial loans 

In terms of repayment, you’ll need to consider whether a fixed or variable interest rate works best for you, as well as whether you want to put up collateral for a secured loan  

versus an unsecured loan.  

Each option has the potential to influence the interest rate you are offered.  

Some lenders may offer an interest-free period when you first take out the loan, which should be considered when making  

comparisons. 

Commercial loans are frequently advertised with an estimated interest rate or quoted upon  

application.  

This is because the lender must assess the complexities of business revenue, debts,  

and cash flow (along with the owner’s finances) before they can accurately  

determine the risk involved in lending to that business.  

As a result, determining what is a ‘good’ interest rate for any given loan is difficult—but it is still worthwhile to compare what is available. 

Conclusion 

It isn’t much difficult to choose one of the most suitable commercial loans in Australia once you get in touch with us. We’ll guide you in every single step so that you can flourish in your business. 

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