Key considerations before getting a commercial loan for business expansion

Commercial loans in Australia can be used for a variety of purposes, including buying commercial property or additional equipment, renovating your space, and hiring more employees.

If your company is performing well, you might be considering expansion. But while growing one’s business can be a thrilling experience, it usually comes at a tremendous expense. You can get the money you need for expansion with a commercial loan without sapping your cash flow or delaying until you have the money on hand.

However, before applying for a commercial loan, there are a few key considerations you need to cover first.

1. Loan amount

How much money do you need to expand your business? Qualifying for commercial loans for small businesses and how much you can borrow depend a lot on your income and credit score. Most lenders also establish minimum and maximum loan amounts.

2. Loan term

The loan term is the amount of time you have to repay the loan. It could be anything from a year for smaller loans to twenty years or more for larger loans, such as those intended for real estate purchases. Longer loan terms allow for more manageable monthly payments; however, you’ll end up paying more interest overall.

3. Interest rate

Compare commercial loan interest rates when choosing from among different providers. Borrowing from an establishment that offers a lower interest rate makes perfect sense, but make sure there are no hidden charges or fees.

4. Fixed vs variable interest

With a fixed-interest rate loan, your monthly payments will remain constant. Banks usually ask their clients to provide some form of security if they want to fix the interest rate. However, with a variable loan, the interest rate may change depending on prevailing market conditions, so your payments can fluctuate as well.

5. Fees

Besides charging interest, the lender may also charge certain amounts to the borrower, such as:

  • Application and origination fees
  • Late payment charges
  • Prepayment penalties
  • Account maintenance fees
  • Guarantee fees

Make sure you are clear about whatever costs you may incur in relation to the commercial loan.

6. Your ability to pay

Last but not least, you must have a compelling reason and the necessary financial data in order to be granted a commercial loan.

This entails providing financial documentation to demonstrate the viability of your business and its ability to generate adequate cash flow to cover loan repayments.

Some documents and information you may need to provide to be eligible for a commercial loan include:

  • Tax assessments for the last two years
  • Profit and loss statements
  • Balance sheets
  • Personal information (including your financial status)
  • How long the business has been operating
  • Reason for the loan
  • Type of security offered (if any)

Getting a commercial loan to finance your expansion plans is a good way to jumpstart the growth of your business. However, go over the above items first before proceeding any further, and importantly seek advice.

7. Cover the bases and protect your business
Ensuring you have professional services coverage is crucial to the survival and longevity of your business. By opting for the various types of insurance, you’ll be better equipped to deal with unforeseen events that can lead to business losses.

When choosing a professional services insurance package, ask questions and ensure you are clear about what specific items are covered in your policy.


If this article has inspired you to think about your own unique situation and, more importantly, what you and your family are going through right now, please contact your advice professional.

(Feedsy Exclusive)


Like This