By Kim Woodward, Founder & Director, Woodward Finance

Small businesses are the backbone of Australia’s economy, nearly 97% of Australian businesses employ fewer than 20 people, yet they contribute significantly to output, employment, and innovation. Reserve Bank of Australia+1 As a broker specialising in small business lending, I frequently get asked: What are the best finance options for small businesses? This finance guide for small business lays out the main choices; term loans, overdrafts, lines of credit, and private lending, with real-world trade-offs and a case study from Woodward Finance to illustrate how we apply them in practice.

1. Term Loans (Fixed-Term Loans)

What it is: You borrow a lump sum upfront and repay principal + interest over a set term (e.g. 1 to 5 years).

When it’s useful: For one-off capital purchases, equipment, machinery, vehicles, expansion, renovations.  You need certainty in repayments and a fixed schedule.

Pros:

• Predictable payments help with budgeting
• Lower interest vs some revolving options (if secured)
• Longer terms available when secured

Cons / Risks:

• You must service repayments even if cash flow dips
• May require security (e.g. business assets or personal guarantees)
• Less flexibility if you don’t use full funds immediately

For example, many challenger lenders and neo-banks (like Judo Bank) offer targeted term loans or SME banking products tailored to businesses. Wikipedia

2. Overdrafts

What it is: A revolving facility attached to your transaction account that allows you to draw into overdraft up to an agreed limit, paying interest only on what you use. Sprintlaw+2Canstar+2

When it’s useful: For short-term cash flow gaps, supplier payments, seasonal fluctuations, or bridging until customer payments arrive.

Pros:

• High flexibility, draw and repay multiple times
• Interest only on amounts you use
• Immediate access to funds when needed

Cons / Risks:

• Typically higher interest and fees than a term loan
• Annual reviews, overdraft facility could be reduced or withdrawn
• May require security or personal guarantees

According to Sprintlaw’s guide, businesses should fully understand the terms, fees, and obligations before accepting an overdraft. Sprintlaw Canstar and other comparison services also provide useful benchmarking of overdraft facilities. Canstar

3. Lines of Credit

What it is: A more formal revolving facility separate from your transaction account. You can draw as needed up to a credit limit and repay flexibly.

When it’s useful: Same cash-flow bridging use-cases as overdrafts, but often with more structured terms and limits. More suitable for ongoing financing rather than ad-hoc gaps.

Pros:

• Flexible access to capital
• Can help smooth income volatility
• Only pay interest on what you draw

Cons / Risks:

• Must carefully manage usage to avoid excessive finance charges
• Renewal or review risk each year
• Rates and fees can vary significantly

Some lenders may call a line-of-credit facility if conditions or your financials slip, so it’s not “free money” forever.

4. Private Lending / Non-Bank / Alternative Credit

What it is: Loans from private lenders, fintechs, peer-to-peer platforms, or specialty lenders outside the traditional bank system. These may include asset-backed “chattel mortgage” style lending, merchant cash advances, or invoice financing.

When it’s useful: When standard bank or broker-based credit is difficult to access, or speed is critical.

Pros:

• Faster approvals and more flexible underwriting
• Possible for businesses with imperfect credit history
• Alternative collateral types beyond property

Cons / Risks:

• Often much higher interest rates and fees
• Shorter repayment terms
• More aggressive default and penalty conditions

A caution: unsecured private lending can be risky if not structured properly. Industry commentary has flagged average rates as high as ~18% for unsecured small business lending vs ~6% for secured options. ODIN Regulatory scrutiny is increasing, for instance, ASIC has recently taken action against predatory lenders over high-fee practices. The Australian

5. Hybrid / Blended Approaches & Flexibility

Often, the “best finance options for small businesses” come through combinations:

• Use a term loan for an asset purchase, and maintain an overdraft or line of credit as buffer
• Use invoice finance or debtor finance to free up capital
• Use staggered draws (i.e. don’t draw full amounts upfront)
• Refinance or renegotiate debt structures as business evolves

Woodward Finance Case Study: Unlocking Equity for Mining in the NT

Background:

In mid-2025, Woodward Finance was approached by a long-standing mining client based in the Northern Territory who needed to release working capital tied up in equipment. The business was in the process of renewing its gold mining lease and expanding exploration works, but most of its available cash was committed to site operations, fuel, and labour.

The client owned a Boart Longyear Geo-Technical Drill Rig valued at over $400,000, a critical piece of gear for their upcoming drilling campaign. The challenge? Despite being almost 20 years old, traditional lenders wouldn’t recognise it as acceptable security due to age, even though the rig had low hours, strong service history, and was in high demand across the region.

Our Solution:

After assessing the asset, we recognised its true commercial value and the strategic importance it held for ongoing operations. Rather than decline based on age, we structured a specialist equipment-backed facility that enabled the client to release equity from the drill rig without interrupting their workflow.

• The facility was secured directly against the rig, supported by an independent valuation and current market-demand evidence.
• Funds were released swiftly to allow the client to finalise their lease renewal and maintain compliance with exploration licence conditions.
• We built flexibility into the structure so repayments matched the business’s projected cash flow from their upcoming drill contracts.

Why This Structure Worked:

• The client could keep operating their rig on site, no downtime or asset sale required.
• Instead of relying on unsecured lending or overdrafts, they leveraged an existing asset that was underutilised as collateral.
• By releasing equity, the business preserved valuable working capital and continued exploration without delaying timelines.
• Because Woodward Finance has access to a wide panel of lenders, including niche mining and equipment funders, we were able to secure an approval where traditional lenders said no.

Outcome:

The funding provided a timely injection of capital that kept the project moving and allowed the business to renew its mining lease and continue drilling operations without disruption.
Within weeks, the client’s exploration works resumed, and the rig continued generating income instead of sitting idle as a balance-sheet asset.

💡 This outcome shows that even older, specialist equipment can still hold significant value and play a key role in structuring funding solutions for mining and resources projects, especially when you work with a broker who understands both the asset and the industry.

How the Current Economy Shapes Small Business Lending

The macro environment matters. The Reserve Bank and recent economic bulletins note that small businesses face headwinds in 2024–25: slower demand growth, elevated input costs, and rising interest rates. Reserve Bank of Australia+1 Many small businesses built pandemic buffers, but those are being drawn down. Credit availability is tighter as lenders become more cautious. Reserve Bank of Australia+1

Also, banks are shifting strategies: for example, BOQ recently announced it is exiting large portions of its mortgage business to focus more aggressively on business lending. The Australian That signals both opportunity (more capital into business) and competition pressure (lenders will sharpen their underwriting).

In this environment, small businesses must be more discerning, access is not guaranteed, the cost of capital is rising, and the structure of finance increasingly matters.

Which Option is Right for Your Business?

Here’s a simple decision framework:

In every case, the best finance options for small businesses are ones calibrated to cash flow, collateral, repayment capacity, and the growth roadmap, not simply the lowest advertised rate.

Final Thoughts

This finance guide for small business is meant to give clarity on the main vehicles available, term loans, overdrafts, lines of credit, and private lending, and help you understand their strengths and trade-offs. In the current economic climate, flexibility, structure, and advisor relationships matter more than ever.

At Woodward Finance, we’re not just brokers trialing generic products. We review your business, cash flow cycles, risks, credit history, and goals, then match you to lenders and structures that make sense. As your business grows, we stay alongside you to evolve your finance stack.

If you’d like a complimentary review of your small business finance options or help deciding which path is best for you, let’s talk.