Prepare your business plan
To get an outline of your financial situation and business goals, most moneylenders will need to see your business plan preceding loaning cash to you.
Assuming you’re similar to numerous small business proprietors, you likely have inquired “How might I get a business loan?” or “Is it difficult to get a business loan?” Getting a business loan for a small-to-medium enterprise in Australia can be a test. Prior to overcoming a portion of the hurdles to demonstrate you can responsibly assume the loan, you really want to conclude which loan is best for your business.
Understand your finances
Regardless of whether you set up your own financial statements, it’s vital to have a fundamental comprehension of your finances.
Setting up a cash flow statement provides you with a decent depiction of your cash coming in and going out such as:
- Current income
- Net profit
- Expenses
- Future projections.
Debt or equity finance – what’s right for your business?
Debt finance incorporates any sort of finance where you are relied upon to take care of the assets. This incorporates traditional bank term loans and elective types of business finance. Examples of debt finance incorporate secured and unsecured business loans, credit cards, business overdrafts, lines of credit, and loans from family and companion.
With equity finance, you don’t need to reimburse any cash however you surrender part of the ownership of your business. Types of equity finance incorporate private and public (share market) investors, family and companion, angel investors and crowd-sourced funding.
Likewise, generally small-to-medium enterprises in Australia pick debt finance to get set up and develop. Equity finance is regularly considered at later stages after a business is grounded and has accomplished significant growth. At the point when the organization has a demonstrated track record, it’s bound to draw in investors who see the potential for future growth and need an equity share in the business.
When is the right time to get a business loan?
Assuming you have another business or have been working for a few years, you will definitely ask ‘When is the right time to get a business loan?’ For some, there is a disgrace appended to getting into debt with a business loan. Assuming you have personal debt, getting a business loan may appear to be a stage backwards. In any case, most Australian businesses need to get finance sooner or later to overcome cash flow issues or find ways to grow. The following are a few reasons why it very well may be time to get a business loan:
- Managing cash flow with a business loan
- Growing your business with a business loan
- Buying inventory with a business loan
- Buy machinery and equipment with a business loan
- Marketing and advertising
- Relocating and expanding
- Renovation
- Hiring and training staff
- Building credit for the future with a business loan
- Pay off debt with a business loan
Choose a loan type or financial product for your business
When you evaluate your requirements, you ought to examine which financial product is the right one for your business.
Each loan type will have different tax and GST implications. It’s astute to talk about this with a V M Mortgage and Finance Broker.
It’s ideal to look around and discover what products are on offer when looking for finance. Despite the fact that there can be limits for existing customers, you may find a less expensive choice with more flexible terms somewhere else.
Common financial products and loan types
Loans
Loans can vary in the amount, loan term (the period in which you repay the loan), interest rate, interest rate type (fixed or variable), fees and security. It’s best to check the product disclosure information carefully before you apply, regardless of which product you choose.
Overdraft facility
Overdraft facility links to your business account with an authorized overdraft limit. You’ll usually need a credit check of your business viability as security. The overdraft facility provides working capital for your business before you receive income. You shouldn’t use it for capital purchases or long-term financing needs.
Line of credit
Line of credit provides access to funds by allowing you to draw on an account balance up to an approved limit. As long as the balance does not go over the limit, you can draw funds at any time.
Fully drawn advance
Fully drawn advance provides access to funds upfront for long-term investments. For example, you might need it for a new business or equipment that expands your business capacity. A fully drawn advance lets you fix the interest rate for a period. This provides certainty and stability for your repayments.
Commercial bill
Commercial bill (also known as a bill of exchange) a commercial loan type for short-term funding needs, such as inventory. You get a fixed sum advance, with a regular interest payment. The final amount is due at the end of the term.
Rent to buy
Rent to buy you pay an initial deposit and then lease a good until you pay it off. Consider options like lay-by – they can be cheaper.
Commercial hire-purchase
Commercial hire-purchase you purchase a good with an initial deposit. You then lease while paying installments plus interest charges. You may also reduce your installments by choosing a larger final payment. This is also called a ‘balloon’ payment.
Chattel mortgage
Chattel mortgage similar to hire-purchase except you owns the asset from the start. You make regular ongoing payments. You may reduce the payments by choosing a larger final payment.
Factoring
Factoring (also known as debtors finance and accounts receivable finance) – when a factor company buys your outstanding invoices at a discount. The factor company then chases up the debts. This is quick way to get access to cash. But it can be more expensive than traditional types of finance.
Invoice finance
Invoice finance similar to factoring except that the invoices or accounts remain with your business.
Choosing between secured and unsecured business finance
While thinking about when and how to get a business loan, it’s important to understand the fundamental contrast among secured and unsecured business finance. Basically, a secured loan is upheld by guarantee that has been swore by the borrower. With an unsecured loan, you don’t promise insurance. Contingent upon the kind of the loan, insurance for a secured loan can incorporate residential, rural or commercial property, machinery, equipment and vehicles.
Regardless of whether a loan isn’t secured, which means you haven’t swore explicit guarantee as security, your resources can at last be utilized to reimburse the outstanding equilibrium on the off chance that you can’t make reimbursements.
Interest rates of secured and unsecured business loans
Whether a loan is secured or unsecured to a great extent affects deciding the interest rates. This is on the grounds that the risk will be higher for the bank with an unsecured business loan. With a secured business loan, you vow property or different resources that the bank can offer to reimburse the loan in the event that you are can’t make repayments. This diminishes the risk for the bank, so secured business loans have lower interest rates contrasted with unsecured business loans.
Required paperwork
Meet or speak to a V M Finance & Mortgage , who will ensure you’re prepared. You’ll need following documentation such as:
- Proof of identification
- Your business plan
- Main financial reports for the last three years (if available)
- Financial forecasts
- Ratio calculations
- Personal financial information.
We will help you in compiling your details into a report will look professional and give your lender an overview of your finances.
For an expert advice
If you aren’t confident answering financial questions when you apply for finance, either:
- Practice answering them
- Take V M Finance & Mortgage Broker along with you to help.