Why Go for a Business Loan?
A business loan is meant to help you plan major investments for the future of your business.
A business loan is different from other short-term forms of finance like overdraft and commercial line of credit. It’s used to directly fund initiatives related to business expansion, such as establishing a new office, buying new equipment, renovating existing facilities or business acquisition.
You get all the loaned funds at the start of the contract and make regular business loan repayments over the life of the loan.
Equipment Finance
If you’re looking to acquire a range of expensive equipment for technological advancement or expansion of your business, you may want to consider equipment finance, which can help you achieve your goals without hurting your working capital.
With the financed funds, you can rent or lease equipment for a set period of contract. Accordingly, many different kinds of equipment finance are available, namely finance leases, hire purchase and equipment loans.
If you want your business to stay abreast with technological advancements, then you can opt for an equipment finance lease. This means that you can lease equipment for a specific period and then renegotiate for the same equipment or new equipment after that period is over. As such, you can have access to the latest equipment without spending capital constantly.
If you’re looking to own the assets (until the contractual period is over), then hire purchase would suit your business.
Your other option is an equipment loan, which is also known as chattel mortgage. This is a fixed interest loan secured by mortgaging an asset. It gives the borrower tax benefits in that GST is not paid on your business loan repayments.
Business Loan Options
An unsecured business finance such as a business overdraft can provide you with access to funds that are for short term requirements. Such an arrangement usually offers a cheaper interest rate.
However, if you need funds for larger investments but on an occasional basis, you can consider a business equity line. This would be a secured loan.
Finally, if you are aware of the exact amount that you need for a longer term, then you can go for a proper business loan and skip the short cut.
If you know how much you need to borrow, you might consider a business fixed rate loan, which gives you the certainty of fixed month payments. However, if your cash flow is volatile, you might opt for a business variable loan, as you may be able to reduce repayments if needed.
Fixed business loans
If you need the certainty of monthly repayments, then you should go for a fixed interest rate. However, the interest rates are going to be a bit higher than market rates.
Also, watch out for features like additional repayments to be paid when cash flow is good, as these can lower your overall repaid amount and interest incurred.
Variable options for business
If you’re okay with a little uncertainty in the interest market, you can go for a variable business loan that allows greater flexibility. Some money lenders in Melbourne also offer an option of interest only repayment for the initial period of five years, while some allow a redraw facility for accessing cash in emergency situations.
You also need to choose whether to have a fixed or variable interest rate. Fixed interest rates provide you with repayment certainty. On the other hand, if you choose a variable interest rate, your repayments can go up or down in line with market interest rate movements.
Split loans
A split business loan has both fixed and variable components to balance out the repayments.
The sheer variety of business loan products available in the market can overwhelm you and leave you confused. For a loan that can define the future of something as important as your business, it pays to consult with our brokers and let us handle the cumbersome process for you.
Short Term Funding, Short Term Business Loans, Un-Secured or Secured Business Loans & Quick Loans to Support Your Business Cash Flow
What you’ll need
The main criteria for taking out a business loan is to have a running registered business. After that, the lenders want to see that you can easily repay your loan. This is ensured by submission of documents that demonstrate your credit fitness. You might be asked to show:
- A history of financial performance
- Evidence of solid cash flow
- Evidence of current income and future projections
- Ability to manage expenses and liabilities
- Details of other loans and debts
In addition to this, you’ll have to provide security for the loan, which can be in the form of residential or commercial assets of any kind. The property in question must not have a substantial existing loan over it. If the property gets accepted by the lender, then it can be a huge benefit for you as it will reduce interest rates considerably.
Planning for the loan
Before you apply for a business loan in Melbourne, you must answer the following questions:
- Do I need the money up-front, or would an on-a-needs basis suffice?
- What is the maximum monthly repayment I can afford?
- Is my Loan to Value Ratio (LVR) in the appropriate range to avoid Lenders Mortgage Insurance?
- If I need a collateral, what assets can I offer?
- If the lender asks for a guarantor, who will be willing to guarantee my loan?
- How much accessible equity do I have?
Frequently Asked Questions
How much can I borrow for a business loan?
This will depend on various factors, such as the financial health of your business. Typically, lenders will assess your annual revenue, credit score, business plan and collateral to determine the loan amount. Consult with our commercial business loan broker to determine the maximum loan amount you can qualify for.
How does a business loan work?
A business loan is a financial arrangement in which a lender provides funds to a business, which must be repaid over an agreed-upon period with interest. The loan can be used for various purposes such as expansion, equipment purchase or working capital. The borrower typically provides collateral to secure the loan. The loan terms, interest rates and repayment schedule can vary depending on the lender, the credit score of the business and the purpose of the loan.
How much equity do I need for a business loan?
It depends on the type of loan, the financial health of your business and the lender’s specific policies. Typically, lenders may expect business owners to have a minimum of 10% to 30% equity. However, some loans may have lower equity requirements. It’s recommended to consult with our broker to determine the specific equity percentage needed for your desired loan.
How can a business loan help to grow a business?
A business loan can facilitate growth by providing a business with essential financial resources. This can allow for investment in expansion opportunities, purchasing of equipment or inventory, hiring of more staff and funding of marketing campaigns. Access to additional capital can accelerate business development, increase production capacity and improve overall competitiveness.
What kind of security is acceptable for a business loan?
Acceptable security for a business loan usually includes tangible assets such as real estate, inventory, equipment or accounts receivable. Lenders assess the value and liquidity of these assets to mitigate the risk of default. Startups or smaller businesses may also be able to offer IP or future revenues as collateral. Specific business loan requirements will depend on the lender, loan amount and borrower’s credit score.
Contact Our Business Loan Brokers Today
If you want to find the right business lenders and business finance loan, the team at ARG Finance can help. Call us on 1300 511 655, send us an email or visit your nearest office to have a chat with our business loan brokers in Melbourne.
Risk Assessment
When considering a business loan, the risk profile of the business is looked at carefully to understand your chances of regular re-payments or defaulting on them.
As a general rule, lenders look for three main things:
the loan security
its level and nature
cash flow risk
whether you’ll be able to pay monthly repayments
business risk
whether you’ll ultimately be able to repay the debt