Borrowing to hire staff works when the loan repayments are covered by the extra work your new team member makes possible. The rest of this article helps you test that idea before you sign anything.
If you run a business in Port Kennedy, in the City of Rockingham, you may be turning work away or working long hours to keep up. Hiring is often the next step. It is also a cost that starts before the extra income does, so the way you fund it matters.
Can You Get a Business Loan to Hire Staff?
Yes, a business loan can be used as working capital to pay for wages and the costs that come with a new hire. Lenders will usually want to know how the hire supports the business, so a clear reason helps your application.
A new employee costs more than their pay. You may also need to cover training, uniforms, tools, a vehicle allowance or software, and a few weeks of lower output while they learn. A working capital loan can cover this ramp-up period so your day-to-day cash flow is not drained. Our business loans page explains the main options in more detail.
Secured or Unsecured Business Loan: Which Suits a New Hire?
A secured business loan is backed by an asset, such as property or equipment, while an unsecured business loan is not. Secured loans can carry a lower interest rate, but you risk the asset if repayments are missed. Unsecured business finance is usually quicker to arrange and does not need a specific asset, such as property, as security, but the rate is often higher and the loan amount may be smaller.
Unsecured does not always mean no personal risk. Lenders commonly ask for a director's personal guarantee, and sometimes a general security agreement over business assets. Under a guarantee, your personal assets could be at risk if the business cannot repay.
For a first hire, many owners prefer an unsecured loan because they do not want to offer the family home as security for a wage. That is a fair concern, but check what guarantees the lender requires. If a larger amount is needed, a secured loan may be worth weighing up, as long as you are comfortable with the risk.
Fixed or Variable Interest Rate on a Business Term Loan
A fixed interest rate keeps your repayment the same for a set period, while a variable interest rate can move up or down. Fixed makes budgeting easier, but it may limit extra repayments. Variable can offer more flexible repayment options, but your costs can change.
When you are adding a wage to the books, a steady repayment is often easier to plan around. The right choice depends on your lender and your loan structure, and we can compare options from banks and lenders across Australia for you.
Working Out What a New Hire Loan Could Cost
The best way to test a hiring loan is to work out the monthly repayment first, then ask whether the new role can cover it. The figures below are an illustration only.
Consider a Port Kennedy tradie who is booked out for weeks and wants to hire an apprentice. They borrow $60,000 to cover wages, tools and training for the first few months. Using an illustrative rate of 6.75% p.a. over three years, with monthly repayments, no fees and the loan fully repaid over the term, the repayment would be about $1,846 a month, or about $22,152 a year. Your actual rate will depend on your lender, your business credit score and whether the loan is secured.
The owner then asks a practical question: how many extra jobs does the apprentice need to free up each month to cover that repayment on top of their wage? In this scenario, the owner works out that a small number of extra jobs per month would cover it. That gives them a clear target before they hire, and a number to check against after a few months. If the target looks out of reach, they can adjust the plan or the loan amount instead of finding out later.
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What Lenders Look at Before Approving the Loan
Lenders commonly assess your ability to repay using your business financial statements, bank statements and how long you have been trading.
A short business plan that explains the role, what it will earn and when, can strengthen your case. A simple cashflow forecast showing the first six to twelve months of the hire is also useful.
If your income varies from month to month, our self employed loans page covers how lenders view that, and we can talk through what suits your situation.
Business Line of Credit vs Term Loan for Wages
A business line of credit lets you draw funds as needed and pay interest only on what you use, while a term loan gives you a lump sum with set repayments. A line of credit suits a hire where costs arrive gradually. A term loan suits a hire where you know the full cost upfront.
The trade-off is discipline. A revolving line of credit is easy to keep using, and the balance can stay high if you do not pay it down. Some lenders also charge fees or review limits, so it is worth reading the terms carefully.
Does the New Hire Need Equipment as Well?
If your new team member needs a vehicle, machinery or tools, it can be cheaper to fund those separately from wages. Equipment finance is secured against the item itself, which can leave your working capital free for payroll. The trade-off is that the lender holds a claim over the equipment until the loan is paid.
Splitting the funding this way can also keep each loan matched to its purpose. If your needs are broader, such as premises or larger projects, our commercial loans page covers those options.
Practical Checks Before You Apply
Before you apply, check that the repayment fits your slowest month, not your busiest. Ask what fees apply, whether you can make extra repayments, and what happens if the hire does not go to plan. Leave a buffer in your cash flow for the unexpected.
If the loan will be repaid from business income, ask your accountant about how it affects your tax position. Tax outcomes depend on your circumstances, so it is worth getting advice before you commit.
Hiring is a big step, and we like to be the partner who stays with you as the business grows. When you are ready to talk it through, call one of our team or book an appointment at a time that works for you. We will look at your numbers with you and compare lenders so you can hire with confidence.
Frequently Asked Questions
Can I use a business loan to pay a new employee?
Yes, a working capital loan can be used for wages and the costs of bringing someone on. Lenders will want to see how the hire supports your cash flow and growth.
Should I choose a secured or unsecured business loan for a new hire?
Secured loans can have lower rates but put an asset at risk if repayments are missed. Unsecured loans do not need a specific asset, such as property, as security, but the rate is often higher and the amount may be smaller. Lenders commonly ask for a director's personal guarantee and sometimes a general security agreement over business assets, so personal assets can be at risk if the business cannot repay.
What would a $60,000 hiring loan cost each month?
At an illustrative rate of 6.75% p.a. over three years, with monthly repayments, no fees and the loan fully repaid over the term, the repayment would be about $1,846 a month. Your actual rate and repayment will depend on your lender and your circumstances.
What do lenders look at when you borrow to hire?
Lenders commonly assess repayment capacity using your business financial statements, bank statements and trading history. A short business plan and cashflow forecast for the new role can help your application.
