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Types of Business Loans

by OnDeck Australia,   May 16, 2023

When comparing business loans, it can be hard to know which one is best for your company especially with so many different types of loans and varying interest rates available.  

From a term loan to a business line of credit or whether you choose online lenders or banks, each option offers unique benefits that may fit the needs of your business finance. In this article, we’ll explore some of the most common types of business loans and provide helpful information on how they work. Whether you need fast funding or extended repayment terms, there’s sure to be a loan option that works for you! 

What you need to apply for a business loan 

To apply for any loan, you must meet the lender’s lending eligibility. This differs based on the type of loan, the lender, and the income of your business. 

OnDeck requires small business owners to have: 

  • A minimum business credit score (this is different to a personal credit score) of over 500. 
  • No prior or recent bankruptcy. 
  • Minimum of 1 year in business. 
  • Minimum $100,000 gross annual turnover. 

We may also require other documentation for your business, such as a cash flow statement and cred history, depending on your exact financial situation. 

Read up on our full eligibility criteria and use our online tool Know Your Score to check your business credit score for free. 

Secured and unsecured business loans 

Any type of business loan can be either secured or unsecured, depending on the lender. 

A secured loan requires the borrower to pledge collateral, such as real estate or other assets, to secure the loan. The lender holds a lien on the pledged asset in case of default, which essentially acts as an insurance policy for them. As a result, secured loans typically have lower interest rates, longer repayment terms and higher loan amounts than unsecured loans since the lender has less risk, but the borrower could lose their assets if the loan isn’t repaid on time. 

An unsecured business loan, on the other hand, is not backed by collateral and requires only a credit check and recent bank statements to determine approval. Since there is no collateral, unsecured loans often have higher interest rates and shorter repayment terms than secured business loans. All OnDeck loans are unsecured and do not require business owners to put up any assets as collateral. 

Term business loans 

Business term loans are one of the most popular types of business loans for small businesses and are commonly used to finance operations or major investments. A term loan provides a lump sum of capital that must be repaid in fixed payments over an agreed period of time. 

Short-Term business loans 

A short-term business loan is a loan that is borrowed for a relatively short period of time, usually about 12 months but can range from 6 to 24 months. This type of business financing is often used to finance seasonal businesses, to cover short-term operational costs, or to help fund business growth. OnDeck short-term loans can be for between $10,000 and $250,000. 

Short-term loans are paid off over a short period of time, provide fast access to capital during off-seasons, use a fixed interest rate, and have less total interest rate than longer-term loans. 

Long-term business loans 

A long-term business loan is usually for a longer period of time, such as 5 years or more. This type of loan is often used for larger investments such as purchasing a piece of property or equipment, financing business expansion, or refinancing existing debt. 

OnDeck does not offer loans with a term longer than 24 months, as saddling a business with loan repayments over a long period of time can cause cash flow issues and can rack up significant amounts of interest. 

Working capital loans 

Working capital loans are useful for pushing your business funds just over the line to be able to afford new equipment, employees, or marketing avenues. They are a type of term loan that can provide businesses with the extra working capital they need to stay afloat or even expand. 

OnDeck working capital loans are for between $10,000 and $250,000 and are perfect for when you need to borrow money to help with cash flow issues, short-term expenses, and pushing through unforeseen situations like severe weather interruptions. 

Business overdraft 

Business overdrafts are an alternative to a traditional business loan, as it provides businesses with access to short-term funds that can be used when needed. An overdraft is a type of account that allows the owner to withdraw more money than they have in the account. The exact amount depends on the agreement the business has with the financial institution. It is important to remember that you do pay interest on a business overdraft account, though only on the amount of credit used, not the total credit limit the account is approved for. 

While flexible, an overdraft account has the disadvantage of encouraging a lack of control over business finances. It’s almost too easy to accidentally spend more than can be comfortably repaid. The lender is also able to call in the full loan amount at any time, depending on the specific conditions of the loan agreement. Combining these with a variable interest rate and other management fees, and the financials of an overdraft account becomes very difficult to plan around. 

Business credit card or line of credit 

Business credit cards function in a similar way to a personal credit card, but for your business. They are a great option for businesses that want to build their credit score or don’t need large sums of money for bulk purchases but can put extra cash flow over a period of time to good use.  

Commercial real estate loans 

A Commercial real estate loan is designed for businesses that need to purchase or refinance commercial property. These loans are usually long-term and can be used for purchasing land, office buildings, warehouses, or any other type of business premises. 

Much like a personal loan for property, these loans are almost always secured and have loan terms of many years. 

OnDeck does not offer commercial real estate loans but does provide a variety of other financing solutions that can help with other costs and get your business ready for expansion. 

Business loan types FAQ

What type of financing should you go with? 

The answer depends on the exact needs of your business, and you should always seek professional financial advice before making big financial decisions for a company. When you compare business loans, consider the loan amount, what you want to use it for, what the lender’s interest rate is, and what repayment term works best for your cash flow. 

What are the most common types of small business loans? 

The four big umbrellas that cover almost all types of business loans are term loans, lines of credit, secured loans, and unsecured loans. 

  • Term loans provide a lump sum of capital that must be repaid in fixed payments over an agreed period of time. 
  • A Line of credit is a flexible arrangement that lets you borrow and repay money as needed, e.g., a business credit card, usually for smaller amounts than a term loan. 
  • Secured loans require you to put forward assets as collateral if you cannot repay the loan. 
  • Unsecured loans do not require any collateral, and so are less risky, but can come with slightly higher fees than an equivalent secured loan. 


Prepared by OnDeck Capital Australia Pty Ltd ABN 28 603 753 215 (“OnDeck”) for general information purposes only. Content may belong to or have originated from third parties and OnDeck takes no responsibility for the accuracy, validity, reliability or completeness of any information. Information current as at May 2023. You should not rely upon the material or information as a basis for making any business, financial or any other decisions. Loans issued in Australia are subject to the terms of a loan agreement issued by OnDeck. Loans are subject to lender approval. OnDeck® is a Registered Trademark. All rights reserved.

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