If you're asking that question, you've been eagle-eyed and noticed that for some purchases, we offer a lower interest rate for businesses than we do for personal loans. So it's a fair question that you should wonder why and how you can get the lower rate.
Jade Finance operates in both the personal (consumer) loan market and in the business finance sector for a range of purchases and purposes. As we're active in both sectors, we offer different interest rates in areas where personal and business finance are both applicable. This is a common and standard practice across the lending sector. While we hold firm that we offer better interest rates across the board, our business rates are lower than the personal/consumer rate for that category.
But with many individuals acquiring ABNs so they can operate a hobby business, sell their wares online, set-up their own operations, participate in the gig economy, work as a freelancer or contractor or for another purpose, they may be wondering does holding an ABN automatically make them eligible for business finance as opposed to personal loans. Or on the flip side, as ABNs are relatively easy to acquire, can you simply get an ABN and then get the business interest rates?
In this article, we’re addressing those questions in an explanation of what is required to be eligible for business finance and the options available for those who don’t meet all the criteria.
Interest Rates: Personal v Business
First a quick update on how interest rates are set. The ‘official interest rate’ is the benchmark set by the Reserve Bank of Australia and this determines the rate that lenders can source their funds. It is not the rate that borrowers can achieve on their loans.
Individual banks and non-bank lenders then set their own interest rate for various loan categories for both consumer and business finance. These rates are based on their exposure to that sector, how much business they write in that area, if they specialise in say motor vehicle or marine finance or, for example, if they focus purely on business trucks and equipment. It also depends on what they pay for their funds.
In general, businesses are seen as having a lower risk assessment compared with consumers and hence are afforded a lower interest rate. Businesses tend to have greater assets or are well-founded as ongoing concerns and less likely to default on their loans.
When it comes to sourcing individual loans, your Jade Finance consultant negotiates the interest rate with the individual lender to get you the cheapest rate. Lenders will make an individual risk assessment based on your credit profile and other loan details in your loan application. This process applies to both consumer and business finance.
Business Loan Eligibility
In order to be eligible for business finance, applicants must meet a set of criteria with levels and inclusions varying from lender to lender. While holding an ABN is an essential requirement for a business loan, you must be a ‘business’ even if a micro operation, there are other considerations and requirements.
Lenders require ‘docs’ which refers to financial documentation relating to the business. They want to see that the business is a viable and profitable concern and a good risk in terms of being in a position to meet their loan commitments for the term of the loan.
If the applicant does not have all the ‘docs’, Jade Finance may be able to source a Low Docs or No Docs loan. These loan categories also include what is known in the industry as ‘ABN-only’ loans. That is, loans based on only having an ABN and not all the usually required documents.
The motor vehicle finance area that is car loans, is probably the loan category where many people may be questioning whether or not they can achieve a business interest rate loan. A lot of newly acquired ABN holders might be setting up a new business and new a vehicle of some sort to operate the business. This may apply to tradespeople that are branching out to start their own business, individuals transitioning from employee to self-employed and semi-retirees that still want to be actively engaged but on a part-time, contract or freelance basis.
In order to qualify for in the standard business loan category, you can expect to be requested to produce:-
- ABN and identification
- Registration for GST and recent BAS statements
- Financial accounts usually prepared by a professional accountant
- Business tax returns
If you cannot produce this level of documentation to support your loan application, your Jade Finance consultant will discuss the alternative options which may include a Personal Secured Loan or Low Docs or No Docs Business Finance.
ABN Only Options
Low Docs, No Docs and ABN only loans may be achievable and your Jade Finance consultant will strive to source you a workable loan.
This type of loan usually and may include:-
- Being registered for GST is preferable.
- A higher interest rate than the interest rate for fully documented loans in the same category.
- Additional deposit may be requested by the lender to be paid by the borrower to reduce the loan amount.
- Some level of accounts be presented, even figures compiled by the business owner.
- Other security additional to the goods being purchased required or personal guarantees.
- Loan limits in total loan amount and terms may apply.
Sourcing the Right Loan
Purchasing a vehicle or other goods with a loan under your business entity may allow the business to realise the tax benefits offered by that type of finance. So pursuing a business loan may be very important to ABN holders and other small businesses that don’t meet all the criteria for standard business finance. Alternatives such as personal loans may also be considered.
To make decisions in regard to your individual personal financial position, Jade Finance recommends you consult with your financial advisor or accountant.
Once you’ve made the decision as to which type of loan – personal or business – best suits your purpose and your objectives, your Jade consultant can get to work to source you the cheapest offer at the best interest rates.
To discuss your finance requirements please call Jade Finance. Call 1300 000 008
DISCLAIMER: THE INFORMATION PROVIDED IN THIS ARTICLE IS FOR GENERAL INFORMATIVE PURPOSES AND NOT INTENDED AS FINANCE ADVICE. INDIVIDUALS SHOULD REFER TO THEIR FINANCIAL ADVISOR OR ACCOUNTANT FOR ADVICE IN REGARD TO THEIR INDIVIDUAL FINANCIAL DECISIONS AND SPECIFIC CIRCUMSTANCES. DETAILS IN REGARD TO GOODS, SERVICES AND GOVERNMENT OFFERS AND POLICIES HAS BEEN SOURCED FROM PUBLIC MANUFACTURER AND SUPPLIER WEBSITES AND GOVERNMENT RESOURCES. NO LIABILITY IS ACCEPTED FOR ANY ERRORS OR MISREPRESENTATION OF INFORMATION AND DATA OBTAINED FROM THESE SOURCES.