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Comparing The Best Finance Options for Small Businesses

Finance for small businesses is hard!

We’ve listed and compared the options so you can make the right decision.

Most SMEs come to a point at which they need some kind of financing. This might happen in the very initial stages of business, six months down the track, or for day-to-day management of cash flow.

Whatever the field you’re in and the size of your business, extra funding can be required to fuel growth or navigate hurdles smoothly. If you’re approaching such a time, this is the resource for you. We’re comparing the seven most popular kinds of SME financing options. Have a read below for the pros and cons of each and to discover which are best suited for your business.


  1. Find the right funding for your needs
  2. Comparison Table
  3. Cash Flow Finance Finance
    1. Overdraft
    2. On-Demand Finance
    3. Invoice Finance
    4. Credit Cards
  4. Term Lending
    1. Term Loan (Secured)
    2. Term Loan (Unsecured)
    3. Equipment Finance
  5. Contact


Find the right funding for your needs

The age and stage of your business factors in when it comes to making these decisions.

However, what it generally comes down to is what you need the funds for. There are two main needs and two categories of finance:

  • Cash Flow Finance: solving the need for ongoing and more flexible funding to finance the day-to-day operations and cover gaps in cash flow.
  • Term Lending: a lump sum to capitalise the business. This could be when starting a business, or when growing your business to the next level.

Generally a combination of both Term Lending and Cash Flow Finance is the best and most efficient solution for small businesses to meet their different funding needs.

Cash flow finance for the day-to-day operations and growth

The number one reason business fold is due to a lack of cash flow – 84% of businesses that failed cited cash flow as the main reason.

Cash flow really is king and critical to the health and growth of your business, not to mention your stress levels and sanity! You need to ensure to have the cash on hand to run your day-to-day operations in an easy and stable way.

An overdraft will usually be employed in the first instance to help manage your smaller cash flow needs.

Credit cards can also be used but these are a high-cost option if not repaying your card continually. Ideally, they should be used as a purchasing tool. Be wary of the increasing fraud activity and ensure your company credit cards have a set transaction limit.

On-demand finance is a great option that allows you to access funds when you need to ensure you always have access the cash at a relatively low cost. This facility does not require you to commit to a long-term loan that you will need to pay fees on, even when you don’t actually need the finance.

Pairing a term loan to capitalise your business with on-demand finance to cover cash flow ups and downs is a cost-efficient way to ensure you have the cash on hand when needed.

Term lending to capitalise your business

If you need start-up capital, for example, and you are willing to put up property as collateral, a secured term loan is the best, lowest cost option and will provide a lump sum.

Unsecured loans are another option for securing money, but the cost will be higher and the amount you can borrow is usually less.

Equipment finance is similar, but more targeted in that it allows your business to buy and start using the equipment to grow your revenue now and pay back the money owing on the equipment from the extra income earned. The ability to buy and pay off much-needed equipment can help you to take your business to the next level.


Finance Comparison Table

Compare small business finance - cash flow

Compare small business finance - Term Lending


What is an Overdraft? An overdraft is simply an extension of your bank balance. It allows you to spend beyond what’s in your account, up to a limit agreed with your bank.  

When best to use: An overdraft is the most common and often the lowest-cost way to manage your daily cash flow needs.  Many businesses will need more than an overdraft will provide to manage their cash flow well, especially when taking advantage of growth opportunities. 

Application Process: You can apply for an overdraft with your current bank. The application process can be quick if you already have a term loan with the bank and your overdraft is within the limits of this. Otherwise, it can take a few weeks (or a couple of months) depending on the speed of your bank. You might be required to provide a cash flow forecast prepared by your accountant—which could add up to $1,500 to the cost.  

Costs and Fees: Nothing in life is free (unfortunately) and business finance is no exception. With an overdraft you will be charged an interest fee, usually between 10 – 22% p.a. for the money you borrow. There is often an establishment fee and monthly fee. Do be careful to avoid unarranged overdraft fees as these can be significant! 

Amount you can borrow: Typically, for small businesses, overdrafts range from $5,000 to $50,000. The amount will vary depending on the size of your business and the security you have with the bank. 

Providers: Overdrafts are offered by all of the major banks.

The pros: benefits of an overdraft 

Easy to use: An overdraft, once established, is easy to access and simple to keep track of via your bank statements and administered by the bank.  

Low cost: An overdraft is relatively inexpensive compared to some other options. However, you will pay monthly for access to it. 

Works well with other bank finance options: An overdraft is commonly combined with a bank term loan providing more flexibility for your business.  

The cons: what to watch out for 

Lengthy application: It pays to apply well in advance of needing funds and the application sometimes be a lengthy and involved process. You will likely have to provide extensive information that can cost both your time and accountant fees.  

Property Security: Banks are conservative lenders, and it may be difficult to get a large overdraft limit if you do not have property to secure it. Keep in mind, if you have a loan with the bank, in practice the property securing your loan will also be securing your overdraft. 

Unarranged Overdraft Fees: Most banks will allow your account to go into overdraft without an agreed limit in place. This does help ensure you don’t get caught out with bills, but the unarranged overdraft fees are significant. 


Term Loan (Secured) 

What is a term loan? A term loan offers a lump sum of money that is paid back slowly over a period agreed between you and the bank. The “secured” aspect of this type of loan means that it is tied to a property as collateral.  

When best to use: Term loans are ideal for situations in which a lump sum is needed to capitalise a business. This might be during the startup phase or in a time of growth. 

Application process: The application process can be lengthy with stringent criteria, particularly with new legislation being introduced in some countries. The bank or lender will require extensive information to help them ensure that you can repay the loan.  

Costs and fees: Typically, the cost is somewhere between 6-12% per annum, depending on the official cash rate at the time. Establishment fees and other administrative fees often apply, but always ask as they will sometimes waive these. Repayments and interest are usually repaid fortnightly. 

Amount you can borrow: Term loans are usually for amounts ranging from $100,000 to several million dollars. 

Providers: They are provided by all the major banks and financial institutions.

The pros: benefits of a secured term loan 

Lowest cost: A secured term loan from one of the major banks is the lowest-cost finance option. 

A common choice for SMEs: Most businesses will use a secured term loan at some point in their journey, and it’s ideal for funding a project that will lead to growth in your revenue. 

Easy to manage: Once obtained, funds are available for you to use. Fortnightly interest payments are automatically debited from your account.

The cons: what to watch out for 

Rigorous criteria: Banks are conservative and governed by increasing regulation. Depending on your business, you may not be able to get a secured loan or get the level of funding you need to manage your business. 

Property security: Secured loans require your property as security. For small businesses ,this often means the family home is at risk should your business not do as well as you had hoped. If you do not have some form of property, you will not be able to obtain a secured loan. 

Lengthy application: The application process for a secured term loan can be lengthy. It requires extensive information and may take as long as six weeks to complete. Ensure you apply well in advance of critically needing finance and be aware that it may not be approved.

Fortnightly payments: These can be tricky for business owners as they may not sync well with a monthly invoicing schedule which may add to cash flow problems.


Term Loan (Unsecured) 

What is a term loan (unsecured)? This type of financing is like a secured term loan – but as the name suggests, it is not secured against property. This makes the loan riskier for the lender and so more costly to the small business. 

When best to use: An unsecured term loan can be used as a source of capital for business owners without property to use as collateral. 

Application process: This can take several weeks, although small amounts from newer digital-first lenders can take less than a week. There can be stringent criteria. 

Costs and fees: Typically, fees for an unsecured loan include an interest rate of 9-36% per annum and an establishment fee of up to 5% of the loan value. There is usually a full schedule of fees; it pays to understand these to know the full cost of this finance option. 

Amount you can borrow: Unsecured small business loans are usually between $5,000 and $50,000 for small businesses. 

Providers: Some of the major banks will offer unsecured loans, but these will not be truly unsecured if you have any other banking facilities with them as they can utilise your other facilities and property through cross-guarantees. Other providers include OnDeck, Heartland and Prosper. There are many to choose from, so make sure to compare these to find the best deal for you.  Lend.com.au can assist here.  

The pros: benefits of an unsecured term loan 

Lump sum: A term loan gives you unfettered access to a lump sum, which is useful for funding the launch of a business or a growth project.  

Quicker application: Often, financial institutions offering unsecured term loans have a shorter application process than the major banks. However, it can still take a few weeks to apply and be approved.  

No property required to secure: A major advantage of this type of loan is that the bar to access is lower. It is available to business owners without property to secure a traditional bank loan. 

The cons: what to watch out for 

Higher costs: An unsecured loan has high fees when compared to a secured term loan and some other financing options. As it is paid back with interest in installments, it is an ongoing cost.  

Fortnightly payments: Unsecured term loans also typically have a fortnightly repayment schedule which can be trickier cashflow-wise for businesses that invoice monthly. 


Invoice Finance (Factoring) 

What is Invoice finance (factoring)? Invoice financing is a form of factoring which offers advance access to the payments due to you from your customers. Rather than waiting for your customer to pay their invoice, you can be paid these funds immediately. Your customers pay the invoice finance company directly, repaying the amount owed by you. 

When best to use: Typically invoice finance is only for medium or large businesses. This option allows these businesses to unlock the funds that are tied up in their accounts receivable (their invoices waiting for payment) and smooth out cashflow. 

Application process: The application process can range from a week through to a few months. The administration required by your business is often not simple, although this has become easier with newer online-first providers. 

Costs and fees: Generally, costs include an establishment fee of 1-2% of the credit limit, a monthly fee, and a lending fee of 9-20% p.a. of the amount advanced. 

Amount you can borrow: You can borrow against invoices owing, so this depends on your business and the total amount of accounts receivable (invoices) you have at the time.  This does, however, mean that your credit limit will likely grow as your business grows. Typically invoice finance will start at $100,000 and can go up to several million for large businesses. 

Providers: Providers of this service include ScotPac, Lock Finance, Waddle, and others. 

The pros: benefits of invoice factoring 

Wide availability: Invoice financing does not require property to secure it, as you are drawing on funds that are owed to you. This means that it is accessible to most businesses that invoice their customers. 

Debt collection taken care of: Some factoring companies will essentially “buy” the invoice debt and then become responsible for its collection. That may be a positive for time-pressed businesses or those having problems with customers or clients paying up. There is a loss of control with this, but it can work well for some businesses. 

Streamlined providers: This is not the case for all invoice factoring services, but there are some online providers which have made the process much easier. The process is streamlined by linking to your accounting software.

The cons: what to watch out for 

Loss of control: The downside of one advantage mentioned above (factoring companies taking responsibility for debt collection) is that you lose some control of relationships with clients and customers.  

Customer do not pay you: Your customers will pay the invoice finance company directly, rather than to your bank account. This requires you to go to each customer and change the account they pay to (and then to do this again, should you no longer need invoice finance). 

Complex fee structures: Invoice factoring often involves multiple different fees which do add up quickly. When comparing providers, ensure you understand all fees as it can be difficult to understand the true cost 

Commitment: To decide whether using the service will—on the whole—be beneficial to you will require a good knowledge of your cashflow needs over the next 18 months or so. Watch out for contracts that lock you into a time or funding commitment as these can be hard to predict. 


On-Demand Finance 

What is on-demand finance? On-demand finance is a form of invoice financing designed specifically for small business. Rather than waiting for an invoice to be paid by your customer, you can access your own money in advance.  

On-demand finance differs significantly from typical invoice financing or factoring because your customer still pays you, rather than paying the invoice finance company.  There is no disturbance in the relationship between a business and their customers or clients. With no change to the way you invoice or collect payments, this makes on demand finance simple and quick to setup and run. 

Another significant advantage is the “On demand” aspect.  Unlike other finance options you can get funds when you need them but you pay no fees when you don’t. 

When best to use: This type of financing is ideal for SMEs who need flexible finance to ensure they are on top of their cash flow. 

Application process: The application process is online and is completed in five minutes and funding is typically provided that same day. The platform will link to your accounting software to remove administration time and costs. 

Costs and fees: The cost is a single fee of 4-6% of the invoice value. There are no establishment fees, monthly fees or early repayment fees. 

Amount you can borrow: Flexible cash flow finance can be used for amounts ranging from $1,000 to $100,000 and so works well for small businesses.  For larger businesses Invoice Financing might be a better option. 

Providers: FundTap have pioneered on-demand finance in Australasia. 

The pros: benefits of on-demand finance 

What you need, when you need it: On-demand invoice financing is unique in that it allows you to access finance as and when necessary. You only pay for the financing that you use, with no ongoing or initial payment and no obligation.  

Quick and easy: Access to your money is immediate. You can receive it within minutes of submitting an invoice for funding. On-demand finance is not subject to new lending legislation and is unaffected by the stringent requirements placed on banks.

Streamlined online platform: Because there is a connection with your accounting software, there is no paperwork involved and the process is stress-free and simple. It is a low-risk, easy solution to cash flow issues. 

Undisturbed customer relationships: On-demand finance requires no change to how your customers pay you nor how you interact with each other. They need not be aware that you are using any type of financing. 

The cons: what to watch out for 

Higher costs for large-scale financing: If you are using on-demand finance as your main source of finance to capitalise your business, the overall cost may be higher than other options. It is best to use on-demand finance for day-to-day cash flow management. 

Not suitable for capital: This option is also reliant entirely on invoicing. It works by advancing money you are already owed—so is not suitable for helping you raise capital when starting out. 

Not Suitable for retail and cash sale businesses: Retail businesses typically collect payments immediately from their customers rather than invoice them.   


Credit Cards 

What is a credit card? A credit card allows you to spend up to a set limit. You borrow as you spend! They operate similarly to debit or EFTPOS cards at point of sale. 

When best to use: Most businesses will only use a credit card for online purchases (such as subscription or a service), although it is better to use a debit card for this. They are not typically used to finance a business due to the small amounts available and higher fees. 

Application process: This can take anywhere from an hour to two weeks. 

Costs and fees: Credit cards involve monthly repayments. Any amount that you do not pay will start to incur interest (10-23% per annum). Establishment fees are often only required for bad credit. However, there can be monthly or annual fees. 

Amount you can borrow: Credit cards usually have limits of $2,000 to $20,000 for small businesses. 

Providers: Credit cards are provided by both traditional banks along with neo banks such as Wise and Revolut. 

Pros: benefits of a credit card 

Easy to get and to use: A credit card is available to most businesses and easy to keep track of through statements from the bank or neo bank. It is simple to use, ideal for online purchases.

Rewards: Some credit card companies offer rewards to their users, but not usually at a level that compensates for higher fees.

Cons: what to watch out for 

Compound interest: Debts incurred on a credit card can quickly become expensive if not paid off quickly. Card holders must be proactive in making payments to keep their costs down. 

Limited funds available: Credit cards have smaller limits (usually $20,000 or less for small businesses. This is usually not sufficient for start-up capital or any other ongoing funding needs.  

Security concerns: Extra care is required to avoid any fraud or theft with increasing credit card fraud being reported. 


Equipment Finance 

What is equipment finance? Businesses can obtain loans specifically to invest in or upgrade their equipment and assets. The piece of equipment or asset is used as security for the loan. 

When best to use: You can use this type of financing to purchase almost anything you could need to run your business: office furniture, medical equipment, farm machinery, tools, large kitchen appliances, and more. 

Application process: The speed and simplicity of the application process will depend on the provider and the equipment you are financing. 

Costs and fees: These are set by the provider. Interest rates are often set at 5-15%. There may be additional establishment fees and ongoing fees.  

Amount you can borrow: Because the equipment secures the loan, the size of the loan is dependent on the value of the equipment.  For specialised or hard-to-sell equipment you will not be able to borrow the entire amount. You can typically borrow 30-100% of the equipment value. 

Providers: The major banks will usually offer equipment finance along with many specialists in this area such as UDC. Lend.com.au can help to determine what is right for you. 

The pros: benefits of equipment finance 

Built-in collateral: Using the asset being purchased as collateral means that you aren’t reducing your lending power elsewhere. 

Low rates: Usually, equipment financing is a lower-cost option due to the lower risk for lenders. 

Business growth: You get the equipment you need to grow your business without paying for it outright and damaging your cash flow. 

The cons: what to watch out for 

Depreciation: the equipment will reduce in value while you are still paying it off. Ensure this equipment is a money-making asset that increases your revenue. 

Amount you can borrow: With more specialised equipment or equipment that rapidly depreciates, the amount you can borrow against it will reduce. This is because the resale value in the event of a default is much less. 

Limited scope: Equipment financing is only available for the purchase amount of specific assets. 


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