The most common reason a business loan fails is a mismatch between the deal and the lender. Getting the order right, from purpose to product to lender, is the difference between a clean approval and a decline plus a damaged credit file.
This guide covers commercial-purpose borrowing. Consumer credit has different rules.
Step 1: Match the purpose to the product
What the money is for decides the product you need, whatever a bank happens to advertise.
| Purpose | Product to consider |
|---|---|
| Buy plant, equipment or vehicles | Asset finance or equipment finance |
| Cover working capital gaps or seasonal swings | Line of credit |
| Fund unpaid invoices | Invoice and debtor finance |
| Buy or refinance commercial property | Commercial mortgage |
| Fund growth, acquisitions or a project | Term loan via commercial lending |
Getting this wrong early causes problems later. A lender that specialises in debtor finance won't price a term loan well. A bank property team won't write a working capital line efficiently.
Step 2: Work out the loan size and serviceability
Before you go to any lender, work out two numbers: how much you need to borrow, and how much the business can comfortably repay.
Lenders measure serviceability by comparing the business's net operating income with the proposed repayment. Most commercial lenders want a debt service coverage ratio (DSCR) above 1.25. That means the business makes at least $1.25 for every $1.00 of loan repayment. Below 1.0, you're asking the lender to fund a shortfall.
Borrow what the deal actually needs. Asking for extra "to give yourself room" raises questions about purpose and pushes up your repayments for no reason.
Step 3: Know what lenders assess
No single number gets a commercial deal approved. Lenders look at six things together.
Trading history
Most non-bank lenders want at least six months' active ABN trading. Major banks usually want two years of financials. Less history means fewer lenders, but some specialists write early-stage and low-doc deals.
ABN and GST registration
You need an active ABN. Lenders expect GST registration for any business turning over $75K p.a. or more.
Financial statements and BAS
Full-doc applications need two years of business tax returns and financial statements, plus the directors' personal tax returns. BAS lodgments show lenders your current turnover. Unlodged BAS gets a decline from almost every lender, so bring them up to date before you apply.
Cash-flow serviceability
For most non-bank lenders, three to six months of business bank statements are the main proof you can repay. They want to see steady money coming in, manageable spending, and no regular reliance on an overdraft.
Security
Secured loans have lower rates and higher limits. Commercial property, residential property owned by a director, or the asset being financed all work. Unsecured loans are available but usually cap at $500K to $1M with non-bank lenders and cost more.
Credit history
Lenders check both the business credit file and the directors' personal files. Defaults, court judgments and lots of recent credit enquiries all count against you. Each lender application puts an enquiry on your credit file whether the loan goes ahead or not.
Step 4: Get your documents together
A standard commercial loan application needs:
- The last two years' business tax returns and financial statements
- The last two years' personal tax returns for each director and guarantor
- Six months of business bank statements
- Current BAS lodgments (up to date, no gaps)
- ABN, ACN, and the trust deed if the borrower is a trust
- A clear statement of what the loan is for, how much, and the security offered
Low-doc deals, where BAS and bank statements stand in for full financials, need fewer documents but cost a higher rate. Applications that arrive complete settle much faster than ones where the lender has to chase missing documents.
Step 5: Know the four tiers of lender
Which lender you go to matters as much as the product. Australia's commercial lending market has four broad tiers.
Major banks (the Big Four)
Lowest rates and the strictest credit policy. They want two-plus years of trading, strong serviceability and usually property security. Application to approval takes three to eight weeks for most commercial deals.
Second-tier banks
Judo Bank, Macquarie, BOQ, Bankwest and others. They're more flexible than the majors, especially for specialist industries and smaller deals. Turnaround is usually two to four weeks.
Non-bank lenders
The widest range of what they'll lend on. This tier includes fintech platforms giving same-day to 48-hour decisions on working capital, specialist asset finance lenders, and commercial mortgage funders. Rates are higher and terms are often shorter, but they write deals the banks won't touch.
Private credit
Structured loans for complex deals: higher LVRs, shorter terms, bridging, or situations where standard bank policy doesn't fit. See commercial lending and private lending for how these work.
A $300K equipment deal and a $4M commercial mortgage belong with completely different lenders. Matching your deal to a lender that actually wants that kind of credit is where a broker earns their fee. For more on how the tiers compare, read bank vs non-bank commercial finance and six categories of business lender in Australia.
Step 6: Application to settlement, with realistic timeframes by product
| Product | Typical timeframe (clean application) |
|---|---|
| Non-bank working capital or term loan | 24 to 72 hours to approval; funded in 1 to 5 business days |
| Asset and equipment finance | 1 to 5 business days from signed documents |
| Second-tier bank, commercial loan | 2 to 4 weeks from application |
| Major bank, commercial loan | 3 to 8 weeks from application |
| Commercial mortgage (non-bank) | 2 to 6 weeks depending on valuation |
| Commercial mortgage (major bank) | 6 to 12 weeks |
In almost every deal, the hold-up is the borrower getting documents back. A complete pack on day one helps your settlement date more than anything else in this guide.
Step 7: Common decline reasons and how to avoid them
Most declines come from one of two problems. Either the business can't afford the repayments, or it can but the lender's policy doesn't fit the deal. The second is more common, and you can almost always avoid it.
The most common avoidable triggers:
- Unpaid tax. ATO payment plans, overdue GST or unpaid super close most bank doors straight away. Get any payment arrangement formally set up before you apply.
- BAS not up to date. Missing lodgments tell a lender you're behind on your obligations. Fix this first.
- Applying everywhere at once. Every application puts an enquiry on your credit file. Applying to five lenders at the same time doesn't improve your odds. It looks like credit stress and makes the damage worse if each one declines. This is the strongest practical reason to use a broker who knows what lenders want before any application goes in.
- Wrong lender for the deal. A hospitality business with strong cash flow but no property security is a good non-bank deal and a poor bank deal. A bank decline followed by a non-bank application means the second lender sees an existing enquiry and a previous decline.
- Thin credit file. A business that has never borrowed is harder to assess than one with a record of repayments. Trade accounts and a vehicle loan build the file before a bigger request.
For what a business loan really costs once you count fees, structure and term, see the true cost of a business loan.
How a broker helps with commercial lending
A broker's job here is more than filling in forms. It's setting up the deal before it goes to lenders, knowing which lenders want that kind of deal right now, and protecting your credit file from applications that were always going to fail.
Aurelius Capital writes commercial deals across the major banks, second-tier lenders and the non-bank specialist market. Our full lender panel covers over 130 active lenders across every product type.
If you have a deal in mind and want a view on structure and lender fit before you apply, the application form is below. Most enquiries get a response within four business hours.