Common Misconceptions About Business Loans

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Many business owners have reservations about borrowing funds due to some common misconceptions about business loans. Some may be apprehensive about them due to the requirements and the process. However, business loans can truly be one of the best financial tools to help grow a business. Misconceptions can lead to hesitation, missed opportunities, or inappropriate financial decisions. Here are some common myths surrounding business loans and the realities behind them:

1. Only Banks Offer Business Loans

Reality: Besides traditional banks, there are non-bank and private lenders that can provide loans to businesses, especially small enterprises and those just starting up. Each lender has different requirements, interest rates, and loan terms, so it’s crucial to compare lenders before applying. In addition there are also specialist lenders dealing with invoice finance and equipment finance too.

2. Business Loans are Unattainable for Startups or Small Businesses

Reality: While it’s true that banks may prefer to lend to established businesses, startups and small businesses definitely have options. Some lenders will take into account a new business’s contracts or forecast and offer finance to support growth. This is especially true if you need to purchase equipment and machinery.

3. Perfect Credit is Required

Reality: Credit requirements vary by lender. Some non-bank lenders focus more on the business’s cash flow and a capacity to repay compared to a director’s credit score – this is especially true of unsecured lenders, invoice finance and specialist equipment finance. However, those with especially low credit scores and defaults may have their lending choices limited to first and second mortgages offered by private lenders.

4. The Application Process is Always Complex and Lengthy

Reality: The loan application process does not have to be complex and lengthy. Some non-bank lenders can approve loans in less than a day with a read only view of business bank statements and no document requirements. While banks typically offer the broadest suite of lending products and the cheapest rates, they still have the longest process but we expect them to be working hard to improve this as non-bank lenders continue to grow market share.

5. High Interest Rates Are Inevitable

Reality: Interest rates are influenced by several factors, including the lender, creditworthiness, and cash rates set by the Reserve Bank of Australia. While some business loans may have higher rates, understanding how to make the right choices around lender selection will lead to the cheapest rates.

6. The Best Business Loan is the One with the Lowest Interest Rate

Reality: A lower interest rate is highly favourable because it usually means lower repayments. However, seeking low interest might not always be the best for your business. For instance, a lower interest rate may be tied to additional charges, which will make your repayments just the same as when you choose a higher-interest loan. Other factors to consider is the security as some banks can restrict future lending and take security against your business assets through the use of an AllPAAP under a General Security deed. An AllPAAP stands for All Present and After Acquired Property and can be difficult to get around if you want to raise capital against equipment you own but your bank won’t allow you.

7. Security is Always Required

Reality: Not all business loans require tangible security. Unsecured loans can be obtained without putting property security on the line. Because they don’t require valuations, like a secured loan would, and their document requirements are low to none, you can get approved for an unsecured loan super fast.

8. You Must Have a Detailed Business Plan to Get Approved

Reality: While a solid business plan can certainly help, especially with applications for bank funding, not all financing sources requires this kind of supporting documentation. Lenders will typically focus more on your business’s current financial performance, credit history and score, balance sheet and are more likely to ask for a 12 month forecast than a business plan.

9. Rejection From a Bank Means Rejection from Everywhere Else

Reality: If ever your loan application gets rejected by a bank, all hope is not lost. There are plenty of non-bank lenders that look to fill the gaps left by the big banks. Even businesses with outstanding tax debt can get approval for finance from many lenders that offer competitive rates.

10. Business Loans Are Always a Sign of Financial Trouble

Business loans are not only for those going through financial struggles and much of business lending is to fuel growth. Many business owners seek loans to invest in better equipment, their premises, people and new markets. Some use loans to improve or add to their products and services. While business loans for cash flow and tax debt consolidation certainly exist, it’s very much not the case that business loans are a sign of trouble for a business.

The Bottom Line

The requirements and processes of business loans vary substantially between loan providers. Some lenders may require higher credit scores and a strong balance sheet from borrowers, but other lenders will place more importance on cash flow. Some lenders can take longer to approve, and some can settle funds within 1-3 days. There are a variety of lenders and loan products that can provide businesses with financing fit for their needs. For business owners, clearing up fears surrounding misconceptions about business loans can open up a world of opportunities.

Looking for a Business Loan?

Don’t hold back because of misconceptions about business loans. Business loans can help take your business to the next level if you choose the right ones. If you’re unsure, Dark Horse Financial can help you. We’re loan experts committed to matching you with the right loans and lenders to help your business succeed.

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Case Studies

Case Study: $1.1M Private Loan to a Commercial Construction Business

Prior to COVID, our client had a thriving commercial plumbing business. Like many in the industry, the pandemic hit hard, with reduced contracts and delayed payments leading to financial strain. However, as the market picked up again post-COVID, their numbers began improving steadily. Still, the burden of the pandemic remained in the form of costly, self-sourced loans that created a significant drain on their cash flow. On top of this, the business had accumulated $1M in tax debt. The client was faced with two potential solutions: consolidate their existing debts into a more manageable loan or consider restructuring the business entirely. With the future looking brighter for their business, consolidation became the preferred choice. Their turnover and cash flow were strong enough to support a $1.1M unsecured loan over five years. However, while loans of up to $250,000 can sometimes be obtained without the need for extensive documentation, larger loans – particularly unsecured ones – typically require financials. The company’s financials had taken a hit during the pandemic, and with losses on the books, the unsecured option was off the table. The Tailored Solution: Secured Loan with Capitalised Interest Recognising these challenges, we adopted a two-step approach to provide the client with the financial relief they needed. First, we secured a $1.1M first mortgage loan, backed by property as collateral. By securing the loan against property, we were able to access a more flexible and favourable lending option that allowed the business to maintain liquidity. One of the key features of this solution was the decision to capitalise the interest on the loan. This strategy meant that the interest accrued on the loan was added to the loan balance rather than requiring regular interest payments to be made. For the client, this provided two key benefits: Cash Flow Relief: By capitalising the interest, the client was able to redirect their available cash flow to more pressing business concerns, including paying down their $1M tax debt. This approach allowed them to stabilise their financial situation without the immediate strain of servicing both the tax debt and the loan simultaneously. Flexibility for the Future: The capitalised interest approach also created breathing space for the business to recover from its pandemic-related losses. By the time the interest needs to be repaid, the business is expected to be on even firmer financial ground, with stronger cash flow and better financials. This would enable them to refinance the loan or even explore unsecured lending options once their financial situation improves. Why This Loan Was the Right Fit In this case, the combination of a first mortgage loan with capitalised interest was crucial in allowing the business to address its immediate challenges while providing room for future growth. Here’s why this was the ideal solution: Secured Loan with Lower Interest Rates: By securing the loan against property, the business was able to access a loan with a lower interest rate than would have been possible with an unsecured loan. This ensured that the overall cost of borrowing was manageable, despite the larger loan amount. Avoiding ATO Enforcement: The capitalisation of interest gave the business the breathing space it needed to focus on paying off its tax debt. This is significant because it helped them avoid any potential enforcement action by the Australian Tax Office (ATO), which could have included garnishing accounts or placing liens on assets. By proactively managing the tax debt, the business was able to maintain control over its financial future. Improved Financial Outlook: The structure of the loan was designed to align with the company’s projected financial recovery. With turnover increasing and cash flow stabilising, the business is expected to be in a much stronger position within a year. At that point, they will be far enough removed from the loss-making pandemic years to consider refinancing the loan or transitioning to an unsecured option with more favourable terms. Key Benefits of This Approach Preserving Cash Flow: Capitalising interest allowed the business to preserve its cash flow for day-to-day operations and critical payments like tax obligations, which was vital to its continued operation and recovery. Future Flexibility: This strategy provided the client with a clear pathway to financial recovery. After one year, the business could refinance the loan under more favourable terms or secure unsecured financing once they’ve demonstrated improved financials. Tailored Solution for Unique Challenges: This loan was structured with the unique challenges of the business in mind. The post-COVID recovery created an opportunity for growth, but also highlighted the need for a financing solution that wouldn’t strain the business’s resources. A first mortgage, combined with capitalised interest, was the perfect balance between providing necessary capital while keeping short-term obligations low. Strategic Debt Management: By choosing consolidation over restructuring, the business retained full control over its operations while addressing its debt obligations. This solution also ensured that their tax debt was managed, reducing the risk of future penalties or enforcement action. In conclusion, this case study demonstrates how a strategically structured loan – even a secured one – can create substantial value for a business, especially when navigating a post-crisis recovery. At Dark Horse Financial, we understand the need for tailored financial solutions that don’t just solve problems but also enable businesses to thrive in the long term. Related posts: Case Study: An Unsecured Business Line of Credit Can you consolidate your business debts? (A Case Study) Increase Supply Chain Efficiency with Trade Finance Case Study: $75k Overdraft Limit + $40k Capital Raise Secured Against Equipment (No Property Security)

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Blog

Financing for Doctors: Medical Business Loans, Personal Loans, and more

Key Takeaways Doctors are considered low-risk borrowers by many lenders. Thus they have access to a wide range of financing options with competitive interest rates, flexible terms, and high loan amounts to support both business and personal financial needs. Some reasons why doctors need loans include purchasing commercial property, purchasing equipment, securing working capital, debt consolidation, further education, and more. Medical business loans are versatile loan products that can cover a range of business expenses, including staffing, marketing, and emergency expenses. Medical practice loans are ideal for doctors looking to acquire, expand, or renovate a medical practice. Medical equipment loans are for purchasing or leasing medical equipment, and helping doctors stay up-to-date with the latest technology without draining working capital. Doctors can access personal loans for managing personal expenses, debt consolidation, home improvements, or continuing education. As a medical professional, assess your needs and carefully compare lenders before committing to a loan. Doctors face unique financial needs, whether they are setting up their medical practice, expanding it, or purchasing new equipment. Fortunately, various tailored financing options are available to healthcare professionals. Understanding these loan types can help you secure the right kind of funding for your medical business or personal financial goals. Let’s explore the types of loans for doctors, including medical business loans, medical equipment loans, and more. Get a quote Why Doctors Need Financing Doctors often need financing for a variety of reasons, both for professional and personal needs. Some of the most common reasons include: Starting a New Practice: Setting up a new medical practice involves significant upfront costs, including leasing office space, purchasing equipment, and hiring staff. Financing helps cover these initial expenses. Expanding or Renovating a Practice: As patient numbers grow, doctors may need additional space, more advanced technology, or enhanced facilities, which require substantial capital. Purchasing Medical Equipment: Medical equipment, such as diagnostic machines, surgical tools, or patient management software, can be expensive. Equipment loans allow doctors to finance these purchases without depleting their cash reserves. Practice Acquisition: Many doctors buy existing practices or partner with other healthcare providers, which often requires financing for the acquisition costs. Working Capital Needs: Running a medical practice involves ongoing expenses like payroll, utilities, and supplies. Financing helps ensure smooth cash flow, especially during periods of irregular income. Debt Consolidation: Personal or business debts can be consolidated through loans with lower interest rates, helping doctors manage their finances more effectively. Continuing Education or Certifications: Doctors often need to pursue ongoing education to stay current in their field. Financing helps cover the cost of courses, certifications, or attending professional conferences. Types of Loans for Doctors Doctors in Australia can access a number of loans to address their needs, whether for their practice or for personal purposes. Here are the most common ones: 1. Medical Business Loans Medical professionals can explore general business loans for any needs concerning their medical business. These loans can cover common costs like working capital, inventory purchases, marketing, hiring, and more. Types of Business Loans for Doctors: Secured Business Loans: Doctors can opt for secured loan options for any business purpose. If you need long-term financing and have significant assets to use as security, you can go for a secured loan. This is best for more significant costs like business expansion. Unsecured Business Loans: If you need a quick source of funding with minimal requirements, you can go for unsecured business loans. These loans are more short-term and can be approved as fast as 24 hours. Business Line of Credit: A renewing line of credit can help doctors manage the daily operations of their business, including paying for payroll, utilities, emergencies, and more. A line of credit has a predetermined limit you can draw from at any time. When you repay, the limit resets. You only need to pay interest on the borrowed amount, not the full limit. 2. Medical Practice Loans If you’re focused on the specific needs of starting or expanding a medical practice, you can go for specific loans that address those needs. Medical practice loans help doctors acquire or upgrade their practice with minimal hassle. Why Opt for a Medical Practice Loan? Whether you’re buying into an existing practice or establishing your own, the upfront costs can be significant. Medical practice loans are tailored to help doctors cover costs like: Purchasing Property: If you’re starting from scratch, the cost of a commercial or office space can be your biggest expense. The right loan can cover this cost. Acquiring an Existing Practice: If you’re buying an existing practice, it requires significant capital to do so. Medical practice loans can cover the purchase price. Renovations and upgrades: If your practice needs modernisation or expansion, these loans provide the necessary funding. Common Types of Loans for Acquiring and Upgrading a Medical Practice Commercial Property Loans: Medical professionals can access commercial property loans for the specific purpose of buying commercial space for their practice. These loans can cover the purchase or building of a commercial space. Fitout Finance: These are loans tailored specifically for the improvement of a space’s interiors, including electrical, plumbing, lighting, structural, and interior design. 3. Medical Equipment Loans The medical field is technology-driven, and keeping up with new advancements can be expensive. That’s where medical equipment loans come in. These loans help doctors finance the purchase or lease of medical equipment without depleting their working capital. What Is Equipment Finance? Equipment loans are designed specifically for the purchase of business equipment. For healthcare professionals, this type of financing is used to purchase advanced medical technology and equipment. These loans allow doctors to spread the cost of expensive machinery, diagnostic tools, or even general practice equipment over time. Benefits of Medical Equipment Loans Get Immediate Access to Equipment: With equipment finance, doctors can get medical equipment immediately, allowing them to provide better patient services sooner. Preserve Working Capital: Instead of paying for equipment upfront, you can spread the cost over a fixed period. 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25 September 2024