The short version
- A $250,000 business loan is usually a term loan with set repayments.
- At this size most lenders want security, such as property or equipment.
- Ask for every fee in writing, as business loans don't show a comparison rate.
What a $250,000 business loan costs
Repayments depend on the rate, the term and whether the loan is secured. These examples leave out fees, which can be large on business loans:
- At 9% a year: $21,863 a month over 1 year, $7,950 a month over 3 years, $5,190 a month over 5 years.
- At 13% a year: $22,329 a month over 1 year, $8,423 a month over 3 years, $5,688 a month over 5 years.
- At 18% a year: $22,920 a month over 1 year, $9,038 a month over 3 years, $6,348 a month over 5 years.
Business loans don't have to show a comparison rate, so ask for every fee in writing and work out the total cost yourself.
Secured or unsecured
For $250,000, most lenders want security, such as property or the equipment you're buying. Security brings the rate down and lets you take longer to repay. Unsecured lenders often cap their loans below this amount.
What lenders look at
- Trading history. Banks usually want two years; some online lenders accept six to twelve months.
- Cash flow. Lenders check that your business bank statements show room for the repayments.
- A director's guarantee. Most lenders ask the owners to guarantee the loan personally.
Pros
- Set repayments over a set term, so you can plan cash flow.
- Money for growth now, such as stock, staff or fit outs.
- Interest is usually a business expense you can claim.
Cons
- Most lenders want a director's guarantee, so your own assets can be at risk.
- Fees can be large and aren't always shown up front.
- Early repayment fees on some loans.
Alternatives
- A business overdraft or line of credit, for costs that come and go. You pay interest only on what you use.
- Equipment finance or a chattel mortgage, for vehicles and machinery. The item secures the loan, so the rate is usually lower.
- Invoice finance, if customers are slow to pay. A lender advances most of what you're owed on your invoices.
How to apply
Lenders want to see that the business can repay a $250,000 business loan from its cash flow.
- Have your numbers ready. Usually two years of business tax returns and financial statements, recent BAS and business bank statements.
- Know your ABN details. Most lenders want the business to have traded for at least six to twelve months.
- Expect a director's guarantee. Many lenders ask the owners to guarantee the loan personally, even when it's secured.
- Ask about the total cost. Business loans aren't covered by the same credit laws as personal loans, so check every fee and the repayment schedule in writing.