Ultimate guide: Small business loans in 2025

How do small business loans work?

Small business loans give business owners access to capital they can repay over time, typically with interest. Before approving the loan, lenders assess the business's financial health, creditworthiness, and revenue. The repayment terms, interest rates, and fees vary depending on the type of loan and the lender's policies.

Most small business loans follow a structured process:

1. Application: The borrower submits a loan application with financial statements and supporting documents.
2. Assessment: The lender evaluates creditworthiness, business performance, and loan purpose.
3. Approval: If the business meets the lender's criteria, the loan and terms are agreed upon.
4. Disbursement: The funds are released as a lump sum or through a line of credit.
5. Repayment: The borrower repays the loan through scheduled instalments, including interest.

Understanding this process can help small business owners navigate the lending landscape more efficiently.

What types of small business loans are available?

There are various types of small business loans, each suited for different business needs:

1. ‍Term loans: A term loan provides a lump sum of money that the borrower repays over a fixed period, usually with interest. These loans are suitable for significant investments, such as expanding a business, purchasing equipment, or funding large projects.‍
2. Lines of credit: A business line of credit allows access to funds up to a predetermined limit. Borrowers can withdraw funds as needed and only pay interest on the amount used. This option is ideal for managing short-term cash flow fluctuations and unexpected expenses.‍
3. Invoice financing: Invoice financing enables businesses to borrow against their outstanding invoices. This helps improve cash flow while waiting for clients to pay, making it an excellent choice for companies with long payment cycles.‍
4. Equipment loans: These loans are specifically designed for purchasing machinery, vehicles, or technology. The purchased equipment often serves as collateral, making it easier to secure financing.‍
5. Government-backed loans: Many governments offer loan schemes to support small businesses, such as the Australian Government's Small Business Loan Guarantee Scheme. These loans typically come with lower interest rates and more favourable repayment terms.

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Are small business loans secured or unsecured?

Loans can be either secured or unsecured:

• Secured loans require collateral, such as property, vehicles, or business assets. Due to reduced lender risk, these loans often have lower interest rates.
• Unsecured loans do not require collateral but usually have higher interest rates and stricter eligibility criteria. Lenders assess risk based on creditworthiness and revenue.

Choosing between secured and unsecured loans depends on the business's financial health, risk tolerance, and asset availability. If you are a new business with little track record, you will likely only be able to apply for a secured loan. This is to reduce the risk for the lender.

What factors affect minor business loan approval?

Lenders evaluate multiple factors when deciding on loan approval:

• Business credit score: A strong credit score increases approval chances and lowers interest rates.
• Revenue and financial statements: Consistent income and solid financial records demonstrate business stability.
• Business plan: A clear plan outlining loan usage and repayment strategy can strengthen applications.
• Debt-to-income ratio: A lower ratio indicates a healthier financial position and increases approval likelihood.
• Industry risk level: Certain industries are deemed riskier, affecting eligibility and interest rates.

Improving these factors can enhance loan approval prospects.

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How to improve your chances of getting approved

To increase the likelihood of securing a small business loan:

1. Build a strong business credit score by regularly monitoring and improving your credit rating by making timely payments and reducing outstanding debts.
2. Maintain accurate financial records – Ensure bookkeeping is current and financial statements are well-organised.
3. Prepare a solid business plan – Clearly outline how the loan will be used and provide realistic revenue projections.
4. Reduce existing debts – Lower outstanding debts to improve financial health and loan eligibility.
5. Show consistent revenue – Demonstrating stable or increasing revenue reassures lenders of repayment ability.

What are the interest rates for small business loans in 2025?

Interest rates depend on multiple factors, including lender policies, loan type, and borrower profile. As of 2025, small business loan rates typically range from 5% to 20%. Government-backed loans may offer lower rates, while unsecured loans tend to have higher rates.To secure the best rates:

• Compare lenders to find competitive options.
• Improve business credit scores and financial standing.
• Consider alternative financing, such as government programs or peer-to-peer lending.

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How can small businesses repay loans effectively?

Effective repayment strategies ensure businesses avoid financial strain:

• Set up automatic payments – Reduces the risk of missed deadlines and penalties.
• Monitor cash flow – Ensures sufficient funds are available for repayments.
• Pay more than the minimum – Accelerates debt reduction and minimises interest costs.
• Refinance if needed – Exploring lower-interest options can reduce repayment burdens.

How Thriday can help you get a small business loan

Thriday simplifies financial management for small business owners, making it easier to qualify for loans. Here's how Thriday can support your loan application:

• Business credit scores: Thriday provides an in-depth view of your business's creditworthiness, helping you understand and improve your score before applying for loans.
• Automated financial tracking: Thriday's accounting and bookkeeping tools keep you in control of your cash flow and ensure you have the financial data required by lenders.
• Expense management: With Thriday, you can effortlessly track expenses and revenue, demonstrating financial stability to potential lenders.
• Tax and compliance support: Thriday helps ensure your tax records are current, reducing any red flags that might impact loan approval.
• Reporting: Thriday makes it easy to export reports such as Profit and loss statements, Balance Sheets, and bank statements.

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Using Thriday, you position your business as a well-managed, financially sound operation, increasing your chances of securing funding with favourable terms.Final thoughtsSecuring a small business loan in 2025 requires careful planning and financial discipline. By understanding the available options, maintaining a strong financial profile, and leveraging platforms like Thriday, you can access the funding needed to grow your business.