Which Lending Option Is Best for Your Business

As a small business owner, when financing a new business one of the most important decisions you’ll make is choosing the right financing option for your business’s financial situation. Whether you need capital to grow your business or just to manage day to day cash flow, there are a variety of lending finance options available to Australian businesses.

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Cash Flow Loans

Cash flow is the lifeblood of any business, and when cash is tight, a business cash flow loan can be a solution that provides relief and reassurance you can continue to carry out operations without running out of money. 

Business cash flow loans are designed to provide businesses with the capital they need to cover expenses, often without having to put up property or other assets as security. Unsecured loans, unsecured overdrafts, and invoice finance are all examples of cash flow lending finance options that generally don’t require business owners to put their property on the line.

If you need a cash flow loan, determining the right solution for you will be influenced by factors like your industry, loan size and your asset position.

Using Property Security

Whilst there are some unsecured loan providers who offer loans up to $1M, if you’re looking for a larger loan, you may need to provide property as collateral to secure the loan you’re after. If you’re seeking a first mortgage, a second mortgage or a caveat loan, the amount you can borrow will depend on the value of your property and the equity available.

The benefits of using property as collateral are that interest rates are typically lower than unsecured loans and there are a range of lenders offering secured loans from traditional banks to private lenders.

Long-Term Strategy vs. Day to Day Cash Flow

When you’re considering financing options for your business based on your current financial situation, it’s important to consider whether you need capital to support a long-term strategy or to manage the cash flow lending needs of day to day operations. If you’re looking to invest in long-term growth, a commercial loan or a term loan may be the right choice. These loans typically have longer repayment terms and lower interest rates than short-term loans.

If you’re looking for a loan to manage day-to-day expenses, a business line of credit or overdraft is likely to be a better solution. Overdrafts allow business owners to access funds up to a pre approved limit.  As the credit is repaid funds can then be accessed again and redrawn up to the limit to support business needs. Unsecured overdrafts are also available with no doc applications for limits up to $500,000 and can normally be set up with funds available in as little as 24 – 48 hours.  

Invoice Finance, also known as Invoice Factoring or Debtor Finance, is another cash flow lending solution that doesn’t require property security.  This line of credit allows business owners to get paid the day they write their invoices which brings revenue recognition forward to support your day to day operational expenses and your current work in progress.

Asset Based Lending

If you need to borrow money to purchase equipment, asset-based lending may be the right choice for your business. Equipment financing is a type of asset based lending that allows you to borrow money to purchase new equipment or upgrade existing equipment. Your equipment serves as collateral for the loan, so interest rates are typically lower than unsecured loans. The benefit of business equipment finance is you can repay the cost of the equipment over a longer loan term while your asset helps produce an income.  This means lower repayments which preserves your cash and allows you to scale your business at a rate that might not otherwise be possible.

You can also use asset finance to unlock the equity in equipment and machinery you already own.  Known as a sale and leaseback, this form of  business equipment finance is a cost effective alternative to unsecured loans.   

Understand your loan purpose and match to the best lender for your industry

Choosing the right lending finance option when financing a new business can be a daunting task, but by considering your cash flow needs, security options, long-term goals, and equipment needs, you can make an informed decision. Once you’ve worked out your loan type you should look for a lender that has a track record of providing the funds you need to your industry type in the timeframe you need.  

If you would like to talk to a business loan expert at darkhorsefinancial.com.au to help make the best decision for your financial situation. For  business cash flow loans you can contact us here.