Business Loans, What Are My Options?
Obtaining finance, to either start or purchase an initial business or an existing one, is probably one of the more difficult forms of finance to achieve. There is a saying in the industry; the only people that qualify for business finance are those that don’t need it. While that is not really the case, lenders will indeed look a lot more closely at this type of lending as it is riskier from their perspective.
Your most difficult type of business loan to get funded would be a start-up. This is where you are building the establishment from the ground up with very little to nothing. You might have a great idea, and that’s it.
The challenge comes in putting it all on paper so that the prospective lender can see how it is all going to work. To be able to see what you see, banks ask you for a detailed business plan as well as cash flow forecasts. This allows them to see your step by step process as to how you will go about getting the company up and running as well as sustain its growth in the early days. The cash flow forecast helps them understand how you will repay the loan and stay afloat.
At this point, I would strongly suggest that you have a great accountant in your corner. Firstly they are a great sounding board and sometimes a reality check. A good accountant will assist you in putting this all together. Accountants can also be a great reality check if they can poke holes in your new business; you had better believe the bank will be even harsher.
The last part of the equation, before presenting to your prospective lender is “hurt money” so lovingly called by lenders as it is their assurance that you have some “skin in the game” too. For a standard sort of business loan, the typical deposit is 50%, meaning if you wanted to loan $500000.00, you would need to have saved $250000.00. This is where that saying comes from, about the only people that get business finance are those that don’t need it. This, however, I feel, is a good policy to have as it makes sure you have a vested interest in the venture. It also is an initial test of your business acumen, if you cannot save an initial deposit, and work with money, then maybe that dream should stay just that. The 50% deposit can be secured against a home, or it could be cash.
The next step would be to engage with a mortgage broker that specialises in commercial finance. Castle Mortgages are Mortgage Brokers based in Adelaide that specialise in commercial finance too. A good mortgage broker will take your scenario and assist you in structuring the finance so that it works for you. More importantly, they will have several commercial lenders that they can compare and help you choose the one that will work for you and what you are trying to achieve. A great Mortgage Boker in Adelaide, like Castle Mortgages, will also assist with all the grunt work when it comes to the paperwork and getting your application in.
After the full start-up, the next type of business to finance would be an established business that a person would be purchasing. This is an order of magnitude easier than the start-up. You still might need a business plan and the like.Which will all hinge on the incoming lender and the experience of the purchaser. As the business being purchased has existing financials, it makes the application much easier, as well as a decision for the bank. You will still need up to a 50% deposit, but this may be less, especially if you are purchasing a franchise, that is registered with that lender. This again is where having a great mortgage broker will aid you infinitely.
As the commercial side of lending does not fall under NCCP, it does not have the same protections for a consumer as you would get under the residential side of lending. While the checks and balances are there from most lenders, it is not as regulated, and you do need to check what you are getting in to, so having a good mortgage broker, accountant, and legal advice in your corner is a must in my humble opinion.
On the back of this, making up for a gap in the market, there has been a surge of Fintech’s who specialise in unsecured business lending. Many of these advertising that funds will be in your account the same day.The main market they cater too are businesses that need access to funds quickly. They will look at a companies turnover and lend a multiple of that, usually. Sometimes they will lend funds as well to purchase a business too. Loan amounts vary between $5000.00 and $300000.00, and terms go up to about three years. This type of funding is unsecured, so rates are normally high, with interest rates of 26% not being uncommon. These guys definitely have a role to play in the market, as can be seen by how quickly their numbers are surging, but you would want to be well informed and know what you are doing gong into something like this. Here, leaning on industry experts before making a decision would be wise.
Once your business is up and running, it opens up the door to many further forms of finance like overdraft accounts, asset finance, and commercial finance. The aforementioned is a topic, though, for another day. Castle Mortgages is a brokerage firm in Adelaide that would be able to assist with all of these. When picking a mortgage broker to help you, would it not be prudent to select the one with all the arrows in their quiver?
We look forward to helping you and hope you will get in touch soon.