What is an alternative business loan?

The short answer

An alternative business loan is any business finance that does not come from a major bank. The term covers a wide range of lenders and products, from online cash flow lenders to private lenders secured by property. What they have in common is that they set their own policies and are generally willing to consider businesses that do not fit the strict rules banks apply.

Why alternative lending grew

Over the past decade or so, banks have tightened and standardised small business lending. At the same time, technology made it possible to read business bank statements quickly and securely. Specialist lenders filled the gap, offering faster decisions and more flexible criteria. Today, alternative finance is a normal part of how Australian small businesses fund themselves, not a last resort.

The main types

Unsecured business loans are sized on turnover and usually backed by a director guarantee. Low doc loans rely on bank statements and BAS instead of tax returns. Lines of credit provide a revolving limit for recurring gaps. Invoice finance releases cash tied up in unpaid customer invoices. Equipment finance uses the asset being bought as security. Revenue-based funding links repayments to sales. And property-secured loans, by first mortgage, second mortgage or caveat, use equity to fund larger or more complicated needs. Our loans section covers each in depth.

Who they suit

Alternative loans suit businesses that a bank’s scorecard declines: those with an ATO debt, a past default or judgement, a short trading history, irregular or seasonal income, late tax returns, or an industry banks treat cautiously. They also suit businesses that need money faster than a bank can provide it, even when their file is clean.

How decisions are made

Instead of feeding an application into a strict scorecard, alternative lenders typically read six to twelve months of bank statements, consider the purpose and the repayment plan, and look at any security. Credit history is still checked once you decide to apply, but it is weighed in context. A default from a failed venture years ago, explained and paid, reads very differently from a pattern of recent missed payments.

The trade-offs

Alternative finance usually costs more than bank finance, because it takes on more risk and moves faster. Terms on unsecured loans are often shorter, with more frequent repayments. The right way to compare offers is total cost in dollars, weighed against what the money achieves. Property security generally narrows the cost gap considerably, and on our property-secured loans interest can be prepaid or added to the loan and no valuation is needed before approval.

How to choose a route

Start with three questions. Do you own property, or does a director? How long has the business been trading? Is there any tax debt or credit issue? Those answers point to the most likely route. The Loan Route Finder asks seven quick questions and explains the reasoning. Our guide comparing alternative lenders with banks helps you decide where to start.

What to watch out for

Be wary of anyone who guarantees approval regardless of circumstances, asks for fees before approval, or pressures you to sign quickly. Check the total cost, the repayment frequency and what happens if you repay early. Reputable alternative lenders answer these questions plainly.

An illustrative example

A surf and outdoor store owner had been declined by her bank because the business was eighteen months old and carried a small ATO balance. An alternative lender reviewed twelve months of card takings, accepted the tax plan, and funded summer stock on a short-term loan repaid over the season.

Find your alternative

Use the 60-second form and tell us what you need. There is no credit check for a first chat, an expert looks it over, and we keep it confidential. Explore alternative finance.