Our client was referred to us by their financial advisor.
A business selling and servicing power saws and other tools, they were seeking $100,000 for an immediate need.
Initially thinking some kind of term loan could be the solution the business owner was looking for help to select the right loan.
Understanding their business, we explained there was a non-bank business line of credit product that had no establishment fees, would support working capital into the future and offer a longer term option than most unsecured term loan options.
The client agreed with our recommendation and an application based on assessment of the business’s bank account statements was completed with an approval given in 24 hours for a $250,000 limit.
Good business – happy client.
Why This Solution Was Right For This Client
Retail businesses can be significantly impacted by seasonal cash flow constraints, as can many other businesses. Directors of retail businesses can feel that different times of the year feel like either a feast or a famine. Most unsecured term loans on the market are relatively short in length and can range from 5 months to 3 years in duration, with 12 month and 2 year terms being the most common.
With short loan terms comes fixed repayment schedules with higher repayments because the loans are paid back faster. While this means you’re debt free faster with a shorter loan term, loan terms that are not as long as you would like can place a strain on cash flow. This is particularly true if you’re running a retail business that is subject to times of the year with high trade and others periods of the year with lower trade.
The features of the unsecured overdraft we recommended for this retail business owner were that the minimum direct debit amount was equal to amortising the loan over a 4 year period – amortising is the loan world’s way of describing to pay off with regular payments. The benefit of a 4 year amortisation period to our client was they had smaller minimum repayments when they were experiencing the time of the year with less sales and therefore tighter margins but also had the capacity to make extra repayments during the time of year when sales are strong.
Fast Application Process
A key factor in getting your lender selection right is selecting a lender you know can settle the credit solution you need in the timeframe that works for you. There are very fast business loans available and this unsecured overdraft is certainly one of them with an application process that takes minutes with us over the phone. Once we’ve recorded some key details you’re invited to link your business bank accounts for a read only assessment that determines the right limit for your business.
For this client, the lender was able to determine their income and expenses over a 12 month period. They pay particular attention to the last 3 month trend of the revenue into the business and the average cash balance the business was holding in their business bank account. Red flags for this lender are revenue and cash balances that are trending down sharply and the presence of direct debit dishonours which indicate a liquidity issue. We had identified before the application that none of these were an issue for our client and, because of this, an approval was granted within hours of them linking their bank statements for assessment.
Extra Repayments Lower Interest
If you are in the position to make extra repayments at different times of the year, selecting a loan solution that allows you to do so makes a big difference to the overall interest you will pay back and how long your loan lasts. A genuine line of credit should only have interest charged on the funds you have drawn, which means as you can make extra repayments the balance comes down and the interest is charged on a lower and lower amount. The benefit of this is your repayment goes to paying back more of the principal debt and less interest.
You can turbo charge this benefit by making more extra repayments at the beginning of your loan repayment period. This also works great on home loans too and can save you tens of thousands in interest and take years off your mortgage.
This is different to most unsecured loans as many of the non-bank lenders who offer unsecured loans charge interest with a simple rate that is calculated on the fully drawn loan balance at the time of settlement. With this kind of loan the interest is equivalent to almost twice as much as the loan solution we recommended to our client which means we’ve saved them big time compared to the fixed term loan solution they thought might be right for them.
Lower Fees
Another benefit to this loan solution is this business line of credit has no establishment fees, no line fees, no management fees and no monthly fees – there is only an annual fee. Almost all business loans and lines of credit come with establishment fees and these are commonly between 0.5% and 2% of the loan size but can sometimes be even higher. Even major banks charge establishment fees and line fees on their business overdraft solutions so the absence of these fees in this solution is a big win for our client.
Tailored Solutions for Business Success
At Dark Horse Financial, we pride ourselves on finding the right financial solutions for our clients’ unique needs.
By recommending a $250,000 business line of credit instead of a standard term loan, we provided this retail business owner with a flexible, cost-effective solution that addresses both their immediate needs and supports their working capital requirements into the furture.
The benefits of this approach include:
- Greater flexibility to manage seasonal cash flow fluctuations
- Lower minimum repayments during slower business periods
- The ability to make extra repayments during peak seasons
- Potential for significant interest savings compared to fixed-term loans
- Absence of common fees, further reducing overall costs
This tailored approach showcases our commitment to understanding each business’s unique circumstances and financial goals. We don’t just offer loans; we provide strategic financial solutions that support sustainable business growth.
If you're a business owner facing similar challenges or seeking to optimise your financial strategy, we encourage you to reach out.
Remember, the right financial product can make all the difference. Contact Dark Horse Financial today, and let's explore how we can help your business thrive.
