When Shouldn’t You Get A Business Loan (Compared To When You Should)

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There are many different reasons for sourcing business finance — for example, we recently sourced emergency same-day funding for a business owner whose major customer was late paying a substantial bill, which jeopardised the business owner’s ability to meet their expenses. Thankfully, in this situation, the finance solution we arrived at was able to quickly and effectively prop the business owner’s cash flow up until the customer was able to make full payment.

In this situation, emergency same-day funding was perfectly suited to our client. However, it wouldn’t have been ideal for every business, and the same goes for other business loans, too — they are certainly not one-size-fits-all.

With so many loan options out there, let’s look at when you shouldn’t get a business loan (compared to when you should).

When you should think twice about business loans

Business financing is certainly not uncommon; in fact, most businesses in Australia, particularly small businesses, will need to lend money at some point. Most businesses look to borrow money to acquire business assets or spur growth to meet their business goals.

Timing can be everything though, so if you’ve thought about when the right time might be to take out a business loan, here are some common times where you should think twice:

1. Your business has very small margins

Profit margins underpin a business’ profitability, so it should come as little surprise to you that a business with minuscule margins may not be in the right financial position to add a further expense or financial commitment to the balance sheet. Perhaps obviously, if the cost of business finance is going to exceed the margin that you make on the services or products you sell, you should seriously consider whether this is going to be in your business’ best interest (even if you’ve already got an approval letter).

2. You’re currently loaded with debt

To repay your debt quicker, streamline your administration and smooth out cash flows, it’s understandable that you might consider submitting a business loan application to consolidate your debt. Debt consolidations can work wonders; however, if you’re already struggling to meet your repayments or you’re at your maximum borrowing capacity, submitting another application for additional finance might not be the most financially responsible decision.

Even in the case of debt consolidation, it’s always a good idea to talk to business lending specialists, such as darkhorsefinancial.com.au, first — particularly if your existing debt is attached to highly leveraged assets or your revenue is drying up.

3. Structural flaws exist in your business

If you plan to watch your business grow, then you need a business plan! Sometimes, if there are existing structural flaws in your business, or you haven’t evolved your business plan as your business has grown, then taking out a business loan could spell trouble. Why, you might ask? Well, if your existing business plan is leaving holes in your revenue, and you’re looking to borrow money to cover the shortfall, it could make your financial situation worse.

Business loans for restructuring a business can certainly work well. However, the owner of the business should look to set their plan up first, which would lay out how new revenue is to be achieved.

4. You’re heading into an off-season

If there is change on your horizon or any uncertainty on how you could confidently meet your business loan repayments, then it could pay to think twice before jumping into any more business loans. Many industries in Australia are seasonal, and may require finance to tide them over. It’s essential to work with a lending expert (like us).

How to assess if a small business loan is the right move for your business

Your business data is a great way to remove your emotions from your decision and help drive your decision around financing options and whether you should take out a small business loan.

Debt

Every credit product you hold under your business adds up. Assessing your existing debt level should be a major starting point when looking to take on a small business loan.

Cash flow

By virtue, business loans are going to affect your cash flow. Don’t just rely on your business banking or bank statements; take a good look at your cash flow statements to understand your capacity to meet your repayments before you apply for a business loan. Your cash flow statement, amongst other financial statements for your business, will not only guide your decision but can demonstrate to financial institutions that you can successfully manage your cash flow.

Security

Offering some collateral for business loans can take the pressure off your interest rate and also increase your chances of approval (as well as speed up the application process). Depending on what the business loan is for, you can look to use physical assets, such as commercial or residential property, as security against the loan. Most lenders will look favourably at commercial real estate or other assets as it provides a fallback if you default on your loan.

Your accounts receivable ledger, commercial property, residential property, and even your inventory are all assets that can be used to back a secured loan.

top tip: Accounts receivables generally involve a slightly longer approval process when you apply for a business invoice financing solution (as sometimes value assessments are needed) however, unlocking the money sitting in your outstanding invoices can represent a fantastic solution vs taking out an unsecured loan!

Interest rates & fees

Consider how a change in interest rates might affect your affordability. Not every lender will offer small business loans with a fixed interest rate. A variable interest rate is subject to change over the loan term, which can either go in your favour or against it.

On top of the interest rate consideration, look at what service fees, establishment or application fees might be charged. These can make a big difference in knowing if a business loan is the right move for your business.

Lending criteria

You’ve probably seen time and time again, the disclaimer that ‘lending criteria apply’. An easy way to consider if a business loan is right for you is to check if you fit the criteria. To find the right loan type out of the many small business loans available, you should take into account your operational cycles, your capacity to repay the loan and other commitments.

Did you know: THAT darkhorsefinancial.com.au is different to an online lender working under an Australian Credit Licence?

Business owners often seek out darkhorsefinancial.com.au because their existing finance is far more expensive than it should be, or it’s come to their attention that it might not be the best fit for their financial needs. We go above and beyond online lenders; we look to help Aussie businesses face the challenges of ill-fitted finance to find the right business loan option at the best possible interest rate.

At darkhorsefinancial.com.au, we understand how businesses can end up with the wrong loan option for their needs; when you’re under pressure, saying yes to any finance approval might seem like a good solution — but this isn’t always the case.

Whether it’s unsecured lending, invoice financing, trade finance or private lending, we will work with you to find a solution that enables your business to grow, with a defined exit strategy for peace of mind.

Request a call from our dedicated team to find out if it’s the right time for your business to apply for a business loan.

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Private Lending

How to Find a Good Private Lender in Australia

Key Takeaways Private lending refers to financing from non-traditional sources, like individuals, private companies, or contributory funds with an investor base. Private lenders provide quick access to funds without having stringent criteria for approval. They also offer more flexibility when it comes to loan terms. To find the right private lender for your business, do research and check the track record of several lenders. Look for introductions from businesses that have previously borrowed from lenders before so you can validate your selected lender has a track record of settling the amount of funds you’re seeking against the security you have on offer. You can also seek help from lending experts to help you find the right lender that can address your financial needs. With the flexibility, speed, and variety of services offered by private lenders, many businesses are turning to them for financing. There are plenty of private lenders in Sydney, Melbourne, and all over Australia. How do you find the right one to help your business? Let’s discover how to find a good private lender by going over the factors and necessary steps, ensuring your business secures the best possible deal. Get a Quote What Is Private Lending? Private lending in Australia refers to financial services provided by non-institutional lenders. Unlike banks or credit unions, these private lenders may be individuals or companies offering loans using their own capital. This option is particularly appealing for businesses that can’t secure traditional financing due to factors like credit issues or lack of documentation or trading history. Private lending is also a great alternative for borrowers who have already been rejected by banks. Private lenders are known for their flexibility, often offering loans tailored to the borrower’s specific needs, including both secured and unsecured options. However, the terms of these loans can vary widely, which is why it is important to select the right private lender. Why Choose a Private Lender? Here are some of the key advantages of borrowing from a private lender: Fast Funding: Private lenders often have a less comprehensive approach to assessment than traditional lenders, allowing for faster loan approvals and fund disbursement. Flexible Loan Terms: Private lenders can customise loan agreements to meet the unique needs of your business, including varying loan amounts, interest rates, and repayment schedules. More Lenient Approval Criteria: Many private lenders are willing to work with businesses that might struggle to get approved by banks, such as those with less-than-ideal credit histories or those with unique business models. Diverse Loan Products: From short-term loans to asset-based finance, private lenders offer a wide array of products tailored to specific business requirements. 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Private loan interest rates can vary significantly, so it’s crucial to ensure that the terms fit within your business’s budget and growth projections. Be cautious of any hidden fees. While private loan interest rates are generally higher than traditional loans, the speed and flexibility they offer can justify the cost. Make sure to negotiate the terms to get a deal that suits your financial situation. Transparency Transparency is a hallmark of a good private lender. They should be clear about their interest rates, fees, and any terms that could impact your loan. If a lender’s fees aren’t clear or they tell you not to worry about some of their terms this could be a red flag. Transparent lenders will provide you with clear loan documents and answer any questions you have upfront. Loan Offerings When looking for a private lender, it’s important to check their loan products and see if they can give you solutions that fit your needs. 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Read Reviews and Testimonials Online reviews can give you insight into a lender’s reputation. Look for reviews from other business owners who have used their services. You can also check financial forums or ask other business owners for recommendations. 3. Compare Loan Offers Once you have a list of potential lenders, compare their loan offers. Look at the interest rates, loan terms, and any additional fees. Use this comparison to narrow down your options to lenders offering the best deal for your business. 4. Seek Professional Help It can be difficult to select the right private lender, especially if you’re new

14 October 2024

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Key Takeaways An unsecured overdraft is a revolving line of credit ideal for funding short-term business needs. It works by connecting an overdraft facility to your business bank account and allowing you to overdraw up to a certain limit. Once you repay what you borrowed, the limit will reset. You only need to pay interest on what you borrowed, not the whole limit. An unsecured overdraft does not need any business assets to secure the line of credit, making it an accessible option to Australian businesses. Unsecured overdrafts have higher rates than secured overdrafts, but the exact interest you will pay depends on factors like your financial profile and the lender’s policy. To properly manage your overdraft, monitor your usage regularly and make payments frequently to minimise interest costs. When you run a business, cash flow can fluctuate throughout the year. Having quick access to funds during low periods is key to staying afloat. This is where a business overdraft comes in. 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14 October 2024

When Shouldn’t You Get A Business Loan (Compared To When You Should)

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