What’s your exit strategy? - darkhorsefinancial.com.au

This might even be an uncomfortable truth for some; if you don’t have an exit strategy for your loan you shouldn’t be taking it.

Too many business owners take on more debt gambling an upturn will save them.

The idea that just another $100k, $300k or, in some cases, $1M or more will see them through and the sales downturn, the current economic conditions, or whatever is giving you a hard time will magically turn around to an easier time is a recipe for more cash flow challenges / business loss / home loss / bankruptcy / family breakdown / insert your version
of disaster.

I see this playing out, particularly with business owners coming to us hoping for a magic bullet after already taking on multiple stacked unsecured loans with catastrophic cash flow implications.

Often it’s the ATO who first forces the issue due to outstanding tax debt and creates the ultimate dilemma.

We can often help with debt consolidation but the road back from here can be tough.

There’s likely going to be more of this.

While it might seem obvious…

A line of credit operates fundamentally different to a term loan.

Too many business owners elect to take an unsecured term loan when their business need is better suited to a line of credit like an unsecured overdraft.

It should be understood by now that rates are higher for longer and challenging business conditions for many industries are likely to persist.

The strength – even the survival – of many businesses depends on the intelligent use of credit.

Cash flow lending or working capital lines of credit are different tools to support business than expensive unsecured term loans.

Especially the loan options that only get more expensive the more distressed your business becomes.

There are great unsecured loans from great lenders but there are also unsecured loans with rates as high as 150% per annum with daily direct debits.

Imagine what a daily direct debit on that rate does to cash flow…

Every loan type has utility in some circumstance but that is not a working capital loan that leads to good outcomes without an exit strategy.

It’s important to remember that loans are not paid from historical EBITDA results they need to be paid from future cash flow.

Term loans without an exit strategy are not the same as correctly used lines of credit – they will starve future cash flow and your business.

If that statement seems confusing and you’re thinking of an unsecured loan as a cash flow solution stop and have a think whether it’s right for you.

Don’t get an unsecured loan as a solution to your current cash flow challenge before talking to a good accountant or a lending specialist who will understand your business rather than just take you to the fastest loan and commission outcome straight away.

There are many loan options but not all of them are sustainable.
If you have a solid exit to your loan then term loans can be a great solution.

But

No term debt should be taken on unless there is a sound strategy for an exit.

Understanding this could mean the difference between surviving a challenging time and not.

Exit Strategy FAQs

What is a loan exit strategy?

A loan exit strategy is the plan to successfully exit the loan. This could be through refinancing your loan, paying it out in line with the loan schedule or paying your loan out early.

What happens to businesses without a loan exit strategy?

Business owners who take out term loans without a specific exit strategy in mind often face hardship in an economic downturn or if they’re faced with a cashflow challenge. This can lead to taking out more debt as a stop gap solution, often at higher rates of interest and shorter loan terms if their credit has been downgraded. More expensive loans that are paid back over shorter and shorter periods of time can place even more pressure on cashflow – business owners in this circumstance often find themselves missing payments, not meeting their ATO obligations and other hardships that place further strain on business. Businesses that cannot meet their loan obligations, their ATO and other creditor obligations can be faced with court judgements and if found to be insolvent can be wound up.

What is the benefit of an exit strategy that pays out a loan early?

Many loans offer discounts on interest if your exit strategy is to pay out your loan early. Not all business loan providers offer discounted interest for early payouts or making additional payments. If you’re intending to pay out your loan early make sure your lender offers a discount for doing so and won’t charge the entire scheduled interest.

Is debt consolidation a good loan exit strategy?

Debt consolidation can be a good loan exit strategy if you’re struggling to keep up with multiple loan repayments that are scheduled at different times because most people find one payment easier to manage. It’s important your debt consolidation loan has a competitive rate and allows the option for extra repayments to be made when you can to help you pay your loan off faster.

Unsecured and Secured Business Loans Across Australia

darkhorsefinancial.com.au offers secured and unsecured business funding services across Australia, each tailored to specific needs and risk preferences. Unsecured business funding offers the flexibility of borrowing without collateral, allowing businesses to access funds fast. Secured loans leverage assets as collateral, often leading to lower interest rates and larger borrowing limits.

With these options available nationwide, including unsecured business loans Melbourne, unsecured business loans Sydney, unsecured business loans Sydney, with also unsecured business loans available across Australia.