Selecting The Right Business Loan For Your Business

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With many options available and many lenders being prolific marketers it’s not uncommon for us to review a business’ past lending and find they’ve entered into a business loan when there was a better option available.

Chattel Mortgages for Equipment Finance

If you’re buying an asset for your business, like equipment or machinery, this will normally be secured with what’s called a chattel mortgage.  

As an example if you were buying an excavator for your commercial construction business, the excavator would be security against the loan.  The lender will relinquish their interest in the machine once the equipment finance loan comes to an end.

Unsecured Loans Can are a Fast Small Business Solution

Unsecured business loans are popular because they’re fast and business owners don’t have to provide lots of financial data.  The application process can be done in minutes through your finance expert and an easy process for linking your bank statement data.  Approvals can be done within 24 hours with settlement the same or very next day.  

An unsecured business loan is a great option for equipment that’s difficult to secure, like scaffolding for instance, or if there is an opportunity you want to take advantage of.  

There’s been a lot of progress and unsecured business loans are very competitive – you can even get unsecured overdrafts and revolving lines of credit.

Trade Finance and Debtor Finance (Factoring)

Trade Finance and Debtor Finance are great for providing working capital solutions to business and supporting cash flow. Trade and Import Finance are lines of credit for purchasing material supplies, both domestically and from overseas.  Among the benefits is the extension to supplier terms and credit they provide.

Debtor Finance, also known as invoice finance and factoring, is a line of credit secured by your invoices.  This credit facility supports cash flow by allowing to claim up to 85% of your invoice value the day you write the invoice.  When your customer pays the invoice, this clears any amount of credit you’ve drawn against it and the balance is forwarded immediately to you.  The benefit of this is that it brings revenue recognition forward which supports your business cash flow.

Interest and Terms

Your interest and terms will largely be determined by what kind of business loan you selected.  

Loans secured by residential property will usually have the lowest interest rates, followed by equipment finance, then working capital lines of credit and cash flow solutions with unsecured loans having the highest rates.

Lines of credit will usually not have an end term, equipment finance terms will typically be 3, 4 or 5 years and unsecured loans 1 – 3 years.  Business loans secured by property might be anywhere from 6 months to 30 years depending on individual circumstances.  

Final Tips

With so many lenders and different types of business loans available it might seem difficult to work out which is right for you.  Identifying the loan purpose will bring the right options into focus and bring some ease to making the right choice for your business.

P.S. Here’s a list of some of the solutions we’re doing for clients at the moment.  

  • $350k to payout a directors personal tax debt so their ATO portal was clear when their home loan application was assessed
  • $600k invoice finance facility for an engineering and metal fabrication business
  • $50k unsecured overdraft line of credit for a residential home builder to pay sub contractors
  • $400k invoice finance facility for a professional consulting firm
  • $130k car finance to a credit impaired director
  • $1M low doc loan to fund an environment remediation project

Get in touch to talk through your situation.

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