We spoke with Bernadine Geary, Director, Cashflow Finance at Fundamental Business Finance, who provided some insights to the...
The Complete Business Loan Guide For 2017
"Planning prevents poor performance"Team Waddle
If you’re looking for a business loan to grow in 2017 or looking to re-evaluate your current funding, get to know these options.
Last year was a pretty big growth year for alternative lending sources outside of banks and this year you’ll see some stiff competition arise that’ll help you get the best possible rate.
To help you understand what’s out there in the market we’ve put together a list of the most popular options in the hope that you’ll spot something that might get you the business loan you need to kick start the year along with some healthy cost savings.
Credit card financing
You can often finance purchases of equipment or materials using credit cards, or even use credit card cash advances in a cash crunch. However, credit card debt is very expensive and you can easily get trapped into a revolving debt situation unable to pay off in full. It’s common to get started in business using a credit card and then graduate to healthier options once your cash flow picks up.
Traditional bank loans
Every business owner thinks of bank finance first and it’s available in many forms (short-term, long-term) and for a wide variety of purposes. Small business unsecured loans are very popular with SME’s usually once you passed the one-year trading mark however, they are only granted up to $30,000 on average. Most bank loans over this size require additional security in the form of property collateral.
Business line of credit
Similar to a home equity line of credit, a business line of credit gives you access to a certain amount of funds, which you can use as needed. You don’t have to draw down on the line of credit until you need it. Once you borrow from it, you start paying it back, and as you make payments (with interest) your line of credit is gradually replenished for you to re-draw again. In almost all cases you will need equity in real estate to obtain this loan type.
Factoring lets you turn your invoices into quick cash by selling your invoices to a finance company, which can be helpful if your customers typically pay in 30 to 90 days. The factoring company buys your accounts receivable invoices at a discount and then pays you immediately for a percentage of the invoices (typically about 80 percent). Once the factoring company collects on the invoices, they give you the balance of the invoice amount, minus a flat fee. Factoring is used widely by businesses that also require collections done by the factoring company. Customers are contacted regularly and it’s disclosed to your customer that you are using a factoring service.
This is an option Waddle offers. It’s similar, in some ways, to factoring, but differs significantly in other aspects. As with factoring, Waddle will advance funds against your outstanding invoices so you don’t have to wait to get paid on a product already delivered or a service already provided. Unlike factoring, Waddle works just like a bank line of credit by granting a credit limit against your invoices for you to draw down and repay.
[inlinetweet prefix=”” tweeter=”” suffix=”@getwaddle”]Just like a bank grants a line of credit against your home equity, Waddle uses your invoices as security instead[/inlinetweet] and does not contact customers or require any disclosure about the funding you have in place. It’s just a smarter way of funding growth.
Some lending companies specialize in financing the purchase of business equipment. Or the company you’re buying the equipment may offer its own financing program. This type of funding comes in many different forms and it’s usually best to contact a specialist finance broker to walk you through the different options as well as understanding the tax benefits.
Purchase order finance
Purchase order finance is often used to buy inventory or materials to fulfill large orders when you don’t have immediate cash on hand. However, you’ll need to have a firm order in hand to make it work. Some lenders look solely at the strength of your transactions for example, Woolworths orders $100,000 worth of finished goods like pencil sharpeners and you need to pay your supplier in China USD$55,000 to ship those goods. The lender will organize payment directly, sometimes by TT or Letter of credit and require the goods to go directly to Woolworths, once Woolworths pays the invoice, the lender is repaid.
Unsecured fixed term loans
A popular option amongst retailers, these loans are used for short periods due to the high costs involved, very convenient and usually very quick times to funding. Lending is usually based on the amount of cash flow coming in on a regular basis to your business and repayments are debited from your account each day to repay the loan.
Within Australia peer-to-peer lending sites are mostly aimed at personal loans however, there are some new lenders in recent times offering factoring services and varies business lending. The online marketplace manages the transaction, serving as a kind of escrow service, and takes a fee in return. This can be a good way to get a small, short-term loan if other methods haven’t worked for you or you like the idea of borrowing money from investors rather than a finance company.
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– Blake Hammon *Certified Review
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