Last reviewed: August 2026. Rates, fees and lender criteria change often, so treat any figures here as indicative and confirm current terms with the lender before you commit.
A business term loan is a lump sum you borrow and repay in fixed instalments over an agreed period, usually at a set interest rate with a clear end date. It suits a single, defined cost: a fit-out, a stock top-up, an acquisition, or working capital tied to a specific project. This guide works through the questions Australian business owners actually ask before taking one out, from how the product works through to what happens if a repayment gets missed.
The short version
- A business term loan is drawn down once and repaid on a fixed schedule, unlike a line of credit you can draw, repay and redraw.
- Terms commonly run from three months to five years, with weekly, fortnightly or monthly repayments.
- Most non-bank lenders quote a simple annual rate on the original amount: 14% on $80,000 over five years means $56,000 in interest and, once a 3% establishment fee is counted, an effective rate near 25%, not 14%.
- Unsecured term loans are available for smaller amounts at a higher rate; larger amounts usually require security or a personal guarantee.
- The repayment does not fall when revenue does, so size the loan against a realistic bad month, not an average one.
Understanding the basics
What actually is a business term loan, and how does it work in Australia?
A business term loan is a lump sum you borrow and repay in fixed instalments over an agreed period, usually with a set interest rate and a clear end date. A term loan suits a single, defined purpose rather than ongoing or unpredictable spending.
Unlike a line of credit or overdraft, a term loan is drawn down once. You get the full amount up front, then repay principal and interest on a fixed schedule, weekly, fortnightly or monthly, until the loan is cleared. Terms typically run from one to five years depending on the lender and the purpose of the loan. For the wider picture of how business lending works in Australia, see how business loans work.
Compare suitable business-loan options: Business Term Loan
Working out if it fits
I know exactly how much I need and what it's for, is a term loan the right fit?
Yes, a term loan is built for exactly that scenario. A term loan works best when you can name a specific amount, a specific purpose, and a repayment timeframe you can commit to in advance.
If your need is ongoing or the amount keeps changing, a line of credit or overdraft usually suits better since you only pay for what you draw. A term loan makes sense for one-off costs like a fit-out, a stock top-up, an acquisition, or working capital tied to a defined project.
I need one lump sum to cover a fit-out, stock top-up and some working capital, what actually covers that?
That combination of needs, a single lump sum for several related costs, is a textbook fit for a business term loan, since a term loan funds one defined amount rather than an ongoing facility.
If part of the spend is on physical equipment specifically, asset finance might cover that portion more cheaply, but for a blended spend across fit-out, stock and working capital, a single term loan is usually simpler to manage than splitting it across multiple facilities.
How do I work out if my business can genuinely afford the repayments on a term loan?
Compare the proposed repayment amount against your average monthly free cash flow, not just revenue. A lender will typically want to see repayments comfortably covered by your trading cash flow after existing debt obligations, not tightly matched to it.
A rough gut check: add up your existing loan and finance repayments, add the new proposed repayment, and see whether that total sits well under your average monthly operating cash flow after wages, rent and supplier payments. If it's tight in an average month, it will be worse in a slow one.
Roughly how much could my business actually borrow on a term loan?
It depends on revenue, trading history, and the lender, but unsecured business term loans commonly range from the low tens of thousands up to a few hundred thousand dollars, with secured loans able to go higher.
Most lenders size the loan around monthly or annual turnover rather than a fixed multiple, so a business with stronger and more consistent revenue can usually access a larger facility. Getting a real number means having a lender assess your actual trading data rather than relying on a rule of thumb. The business loan requirements guide covers what that assessment looks at.
What does a business term loan cost in Australia right now, rates and fees included?
Pricing varies a lot by lender, loan size, security offered and your risk profile, but expect an interest rate plus, in many cases, an establishment fee and sometimes an ongoing or monthly account fee.
Secured term loans are generally priced lower than unsecured ones since the lender has an asset to fall back on. Because Funding Loop compares offers across 50-plus lenders, the fastest way to see an accurate, current cost for your specific business is to run a comparison rather than rely on an average. If a lender quotes you a factor rate instead of an interest rate, read factor rate vs interest rate before comparing it against anything.
Compare suitable business-loan options: Business Term Loan
What do repayments on a business term loan actually look like?
Worked example, illustrative rate only. Most non-bank lenders price a business term loan at a simple annual rate on the original amount borrowed, so the interest is fixed at drawdown and does not shrink as the balance is paid down. On an $80,000 business term loan at 14% per annum simple over five years, interest is $80,000 x 14% x 5 = $56,000. Total repayable is $136,000, and repayments are a level $2,267 a month for the whole term.
Because the rate is charged on the original balance, interest scales directly with the term. The same $80,000 at the same 14% over three years costs $33,600 in interest instead of $56,000, so a shorter term is materially cheaper even though each repayment is larger.
| $80,000 at 14% p.a. simple | 1 year | 2 years | 3 years | 5 years |
|---|---|---|---|---|
| Monthly repayment | $7,600 | $4,267 | $3,156 | $2,267 |
| Total interest | $11,200 | $22,400 | $33,600 | $56,000 |
| Total repayable | $91,200 | $102,400 | $113,600 | $136,000 |
| Equivalent factor rate | 1.14 | 1.28 | 1.42 | 1.70 |
The 14% is used purely to show the mechanics. Your actual rate depends on the lender, the loan size, security offered and your trading profile.
Does the establishment fee change what a business term loan really costs?
Yes, and usually by more than borrowers expect, because an establishment fee is often deducted from the amount that lands in your account rather than added to your repayments. On the same $80,000 at 14% simple over five years with a 3% establishment fee, $2,400 comes off the drawdown, so the business receives $77,600 and still repays $136,000. The real cost of the finance is $58,400, not $56,000.
Converted to a comparable basis, that is an effective annual rate of about 24.8% on the five-year loan against the 14% on the sticker. Two things drive the gap: interest charged on the original balance rather than the reducing one, and a fee charged on money the business never received. Shorter terms magnify the fee effect, because the same $2,400 is recovered over fewer repayments.
| $80,000 at 14% p.a. simple, $2,400 fee | 1 year | 2 years | 3 years | 5 years |
|---|---|---|---|---|
| Total cost (interest plus fee) | $13,600 | $24,800 | $36,000 | $58,400 |
| Effective annual rate | about 30.9% | about 28.2% | about 26.7% | about 24.8% |
This is why comparing headline rates alone tells you very little. Ask every lender for three things: the total repayable, the establishment fee, and whether that fee is deducted from the advance or added to the loan. Effective annual rate on business loans explained sets out how to convert any quote to a comparable basis, and factor rate vs interest rate covers the conversion when a lender quotes a factor instead of a percentage.
To model your own numbers, use the true cost of a business loan guide.
What do lenders actually look at when deciding whether to approve a term loan?
Lenders weigh trading history, cash flow consistency, existing debt levels, industry risk, and credit history, both business and often the director's personal credit. No single factor decides the outcome, lenders assess the full picture together.
Consistent bank account cash flow with limited dishonours or overdrawn days matters more to most lenders than a perfect credit score. A business with a spotty credit history but strong, stable cash flow can still be approved by the right lender.
Is a term loan better for my business than a line of credit?
A term loan suits a one-off, defined cost with a clear repayment date. A line of credit suits ongoing or fluctuating needs where you want to draw, repay and redraw without reapplying each time.
If you're funding a single project or purchase, a term loan is usually simpler and can be cheaper since the rate is fixed against a known amount. If your cash flow needs shift month to month, a line of credit gives you flexibility a term loan doesn't. The line of credit vs overdraft comparison covers the revolving options in more detail.
Should I take out a term loan or just use my own cash reserves?
It depends on the return on the spend versus your buffer. If the loan funds something that grows revenue or protects continuity, preserving your cash reserves as a buffer can be worth the cost of borrowing.
A useful test: if the funded activity is expected to generate more value than the loan costs in interest, and depleting your cash reserves would leave you exposed to a slow month, financing is often the more resilient choice.
What repayment terms are actually available on a business term loan?
Most lenders offer weekly, fortnightly or monthly repayments over terms typically ranging from three months to five years, with the structure usually matched to the size and purpose of the loan.
Shorter terms mean higher individual repayments but less interest paid overall, as the worked example above shows. Longer terms ease the cash flow pressure per period but usually cost more in total interest, so matching the term to how long the funded activity takes to pay for itself is worth thinking through. On repayment frequency specifically, see weekly vs monthly repayments.
What are the real risks or downsides of taking out a business term loan?
The main risk is committing to a fixed repayment obligation regardless of how trading performs. If revenue dips, the repayment doesn't, which can put real pressure on cash flow during a slow period.
Taking on debt also affects your capacity to borrow again later, since lenders factor in existing repayment commitments. Borrowing only what you genuinely need, sized against a realistic worst-case month rather than a typical one, keeps this risk manageable.
When is a business term loan not the right product?
A business term loan is a poor fit when the amount you need keeps moving, when the need is seasonal and recurring rather than one-off, or when the repayment cannot be covered in a bad month. In those cases a line of credit, an overdraft or invoice finance usually suits better.
A term loan is also the wrong tool for plugging a structural shortfall. If the business is not profitable at its current trading level, a fixed repayment adds pressure rather than relieving it, and refinancing later is harder once the debt is already on the book.
A term loan repayment does not flex with your trading. Model the repayment against your worst month in the last twelve, not your average month, and if it only works in a good month then the loan is too big or the term is too short.
Compare suitable business-loan options: Business Term Loan
Getting ready to apply
What paperwork do I need ready to apply for a business term loan?
At minimum, expect to provide your ABN, recent business bank statements, and identification. Larger or secured loans may also ask for financial statements, tax returns, and details of any asset offered as security.
Having your last three to six months of bank statements ready, along with a clear one-line explanation of what the loan is for, speeds up assessment significantly. Lenders move faster when the purpose and the numbers are both clear from the first submission.
Can I get a business term loan approved on bank statements if my financials aren't up to date?
Yes, low-doc and bank-statement-only term loans are common in the Australian market, particularly for smaller facilities. The lender assesses your cash flow directly from transaction data rather than requiring audited financials.
This pathway suits businesses whose accountant hasn't finalised the latest financial statements, or sole traders and smaller companies that don't produce formal financials at all. Expect the trade-off to be a somewhat higher rate than a fully-documented application would attract.
Do I need to put up property or another asset to secure a term loan?
Not always. Unsecured term loans are widely available for smaller amounts, though they usually carry a higher rate than a secured loan and may require a personal guarantee from the business owner.
For larger amounts, a lender is more likely to ask for security, whether that's property, a business asset, or a general security agreement over the business itself. Whether security is required, and how much it reduces your rate, varies materially by lender. See secured vs unsecured business loans and, if a guarantee is on the table, what a personal guarantee actually commits you to.
I need funds fast, how quickly can a business term loan actually be approved and paid out?
Fast lenders in the online business lending space can approve and fund a term loan in as little as 24 to 48 hours for smaller amounts with clean bank statements. Larger or secured loans take longer.
Speed depends heavily on how complete your documentation is at submission. A business that supplies clean, recent bank statements and a clear purpose up front will always move faster than one where the lender has to chase missing information. The business loan timeline guide sets out what happens at each stage.
My term loan application got declined, why does that happen and what do I do next?
Common reasons include inconsistent cash flow, a high level of existing debt, limited trading history, or an industry the particular lender avoids. A decline from one lender rarely means every lender will say no.
The fastest recovery path is understanding the specific reason for the decline, since it's often lender-specific risk appetite rather than a fundamental problem with your business. Comparing across a panel of lenders, rather than reapplying with the same type of lender, is usually the better next move.
How do I properly compare term loan offers from different lenders?
Look past the headline interest rate to the total cost, comparison rate where available, establishment and ongoing fees, early repayment terms, and how the repayment frequency lines up with your cash flow.
Two loans with the same interest rate can end up costing very different amounts once fees and repayment structure are factored in, which is exactly why comparing across a panel of lenders side by side matters more than comparing headline rates alone. The how to compare business loans guide sets out the checklist.
Can a broker compare term loan options for me without me applying to five lenders myself?
Yes, that's the core function of a finance marketplace or broker: one application assessed against a panel of lenders rather than you submitting separate applications, and separate credit enquiries, to each one individually.
Funding Loop works this way specifically, matching one application against more than 50 lenders across business loans, asset finance, invoice finance and other products, so you see comparable offers without the manual legwork or the credit file impact of applying everywhere yourself. On how brokers are paid for that, see how business loan brokers get paid.
Compare suitable business-loan options: Business Term Loan
Next step
I want a business term loan but have no idea which lender suits my business, where do I start?
Start by getting clear on the amount, the purpose, and your timeframe, then compare offers across multiple lenders rather than approaching one bank first. A marketplace model does this comparison in a single step.
Funding Loop arranges and compares business finance; the lender assesses your application and provides the funds. One application is matched against a panel of 50-plus lenders and a specialist walks you through the options genuinely suited to your business, trading history and purpose. There is no credit check simply to see what your options are, so you can weigh a term loan against the alternatives before anything touches your file.
Compare suitable business-loan options: Business Term Loan
Frequently asked questions
Will applying for a business term loan show up on my credit file?
A single formal application typically results in one credit enquiry, which has a small, temporary impact. The bigger risk to your score comes from applying to many lenders separately in a short period. This is exactly the problem a broker or marketplace model solves: one application and one soft assessment can be matched against multiple lenders, rather than you submitting five separate hard enquiries that each mark your file.
My business has only been trading a few months, can I still get a term loan?
Some lenders will consider a business trading for as little as three to six months, though most prefer at least twelve months of trading history and will price newer businesses higher to reflect the added risk. If your business is very new, options are narrower but not zero, particularly if you have strong personal credit, a clear industry track record from a previous venture, or can offer security. It's worth comparing lenders directly rather than assuming you don't qualify.
I've got a bit of bad credit and an outstanding ATO debt, can I still get a business term loan?
Yes, a number of lenders specialise in businesses with credit impairments or ATO debt on a payment plan, though expect a higher rate and possibly a smaller loan amount than a clean-credit applicant. An ATO debt that is actively being managed under a payment arrangement is generally viewed very differently to one in default, so lenders will usually ask for evidence of the plan and your repayment record against it before assessing the rest of the application. See ATO payment plan vs business loan for how the two options compare.
Can I use a new term loan to pay out and replace a facility I already have?
Yes, refinancing an existing business loan or facility into a new term loan is common, particularly if your circumstances or the market has moved and you can now access a better rate or structure. Refinancing makes most sense when the new facility's rate and fees, including any exit costs on the old one, leave you genuinely better off over the remaining term, not just on the headline rate. See refinancing multiple business loans.
If I pay off a business term loan early, will I get hit with extra fees?
It depends entirely on the lender and the loan structure. Some Australian business term loans charge no early repayment fee, others charge a break cost or a fixed percentage of the remaining balance. This is worth checking before you sign, not after, particularly if there's a real chance you'll want to clear the loan ahead of schedule from a strong trading period or a cash injection.
What actually happens if my business can't make a repayment on a term loan?
Missing a repayment typically triggers a dishonour fee and a call from the lender first, not immediate legal action. Ongoing missed repayments can lead to default, which can be recorded on your credit file and may trigger recovery action, depending on the terms of your contract. Most lenders would rather work out a temporary arrangement, such as a reduced payment or a short pause, than push a business into default, particularly if you contact them proactively before missing a payment rather than after.
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General information only - it doesn't take your situation into account. Consider whether a product suits your business before acting, and get independent advice where you need it. No credit check to see your options. A credit check only happens if you choose to formally proceed with a lender.