Top 5 Commercial Loan Types for Your Business

 If you are launching your new business and wish to avail yourself of the loan facilities, then you must know about the various types of lending facilities such as commercial property loans in Australia for the initial funding of your business. 

 

You being a layman may not be familiar with the various loan types available. That is why you need to realize at the very outset that there is no point in searching for the best online home loans in Australia for your trade. Rather, you should focus on what’s relevant for your business. In this article, we have identified the top five commercial loan types that apply to businesses. 

 

1. Bank Overdraft Facility 

 

A Bank Overdraft Facility is your ability to withdraw funds more than what is available in the company's current account. The real size of the facility and the interest to be paid on overdrafts are usually decided before sanctioning. An overdraft facility is a source of short-term funding as it can be protected with an immediate deposit. 

 

2. Term Loan 

 

A term loan is a loan offered for business purposes that must be paid back within a stipulated timeframe. It usually comprises a fixed interest rate, monthly or quarterly repayment schedule - and includes a fixed maturity date. Term loans can be both secure and unsecured. Normally, a secured term loan will be of a lower interest rate compared to an unsecured one. Based on the repayment period this loan type is categorized as below: 

 

• Short-term loan: Here repayment period is below 1 year. 

 

• Medium-term loan: Here repayment period is within a year to 3 years. 

 

• Long-term loan: Here repayment period is more than 3 years. 

 

3.  Bank Guarantee 

 

If you are searching for the best mortgage lender in Australia for your business, then you should remember that you need to choose judiciously. Such as the instance of a bank guarantee. It is a 'letter of guarantee' issued by a bank on behalf of its customer, to a third party, who’s a beneficiary. It guarantees that a specific amount of money shall be paid by the bank to the third party within its validity period after presenting the letter of guarantee. Ideally, a letter of guarantee entails certain conditions under which the guarantee can be invoked. The sum is only paid whenever the opposing party does not fulfil the stipulated obligations as per the contract. Normally, a bank guarantee is applied for insuring a purchaser or seller from loss or damage due to non-performance by the other party within a contract. 

 

4. Letter of Credit 

 

A letter of credit is a document provided by a financial institution assuring payment to a seller, provided that particular documents have been presented to the bank. This confirms that the payment will be made as long as the services are usually performed by the dispatch of goods. Accordingly, a Letter of Credit acts as an assurance to the seller that he or she will be paid as per the agreement. It is mostly applicable during trade financing when goods are sold to overseas customers or the trading parties are not familiar with one another. 

 

5. SME Collateral Free Loan 

 

This is mostly a business loan issued to SMEs and is collateral-free or devoid of a third-party guarantee. Here the borrower doesn’t have to provide collateral to receive the loan. It is made available to SMEs in both the start-up as well as existing phases to benefit the working capital requirements, purchase of machines, and support expansion plans. But it is to be noted that small businesses occupied in retail trade are not qualified for these categories of loans. 

 

Inference 

 

There are other loan types as well. To know more you can discuss at length with the top mortgage brokers in Australia. They can help you in a better way as per the needs of your business.