Whether you’re just starting out as an entrepreneur or have been running your own show for over 10 years Business loan Rolling sleeves is an important factor in success. Business loans, when used responsibly, not only help keep the company alive in difficult times, but also useful when you need additional money to grow or seize growth. Innovation opportunities..
About the author
Katherine O’Chee is the lead business banking writer for Australian financial comparison site Mozo. Every day she looks up banking details and shares the latest money tips with businesses to help her make smarter financial decisions.
Some companies may not be aware of the number of options available on the market, from standard business loans and lines of credit to more specialized options for invoices and equipment. Depending on your company’s needs and financial position, some of these business loans work better than others.
Whether you’re considering buying inventory or need a cash flow safety net, understanding the purpose of a loan is often the first step in finding someone. As a search guide, we worked with a colleague at Mozo.com.au to announce the six most popular business loan types in Australia. Read a snapshot of the key features.
Unsecured business loan
- No collateral required
- Suitable for multiple business purposes
- Prompt loan approval time
This is a basic business loan that can be used for a variety of purposes, such as buying stock, paying expenses, and increasing daily cash flow. As the name implies, unsecured business loans do not require a guarantee and are a good option for small businesses who do not want to endanger their assets.
However, keep in mind that some lenders may require the employer or the board to provide personal guarantees (that is, they are responsible for repaying the loan if the business fails).
Given that unsecured business loans are more risky to the lender than secured loans, they are limited in terms of the amount they can borrow (usually capped between AU $ 200,000 and AU $ 500,000) and the duration (months to years). There is a possibility that However, the smaller size of the loan also means that this type of loan can be approved more quickly, with non-bank lenders such as Moula and Bizcap promising decisions and financing within 24 hours.
Secured business loan
- Need collateral
- More lending amount
- Can be rented for years
Funding large investments like real estate and other businesses will not be easy for a company’s wallet. Secured business loans often have a much larger loan size and much longer loan terms than unsecured business loans, helping to meet these more stringent financing needs. ..
Let me give you an example. Heritage Bank’s full loan has no limit on the amount of the loan and the borrower can repay for up to 15 or 25 years, depending on the type of security.
Of course, this type of finance has higher stakes because you need to provide collateral for family homes, company cars, etc. This makes it even more important to have a repayment plan so that you don’t default your loan and lose your assets. However, the benefit is that security can reduce the risk to the borrower and thus potentially lower interest rates.
- Professional loan
- Protection against the device itself
- Can be used in combination with tax incentives
Equipment loans, as the name implies, are a type of business finance aimed at supporting the purchase, repair and leasing of equipment such as agricultural machinery, automobiles and coffee machines.
However, equipment loans are a special type of loan and therefore do not have the flexibility to fund non-equipment purchases. Therefore, they are primarily intended for companies that are struggling to upgrade or replace their equipment at their own expense. The collateral for this type of loan is usually the device itself. This is good news if you want to avoid using assets you already own as collateral.
Farm equipment rentals have recently proven to be particularly popular, thanks to the surge in farm spending. In fact, between 2019 and 2020, NAB, a major bank, saw a 130% increase in agricultural equipment lending. This is due to a variety of factors.Good seasonal conditions, strong commodity prices, and Government tax incentives It’s like a one-time full cost that a qualified company can claim an immediate tax deduction for depreciable assets, including equipment.
- Continuous access to finance
- Earn interest as much as you use
- Suitable for non-uniform cash flow
It’s an uncertain time, so it makes sense if you need a business loan to help you cope with sudden fluctuations in cash flow. This is where the credit line comes into play.
Like credit cards, credit lines include the ability to withdraw any amount you like, up to the approved limit. The big advantage here is that you don’t have to pay interest on the funds left untouched by the drawdown facility, which reduces your overall loan costs.
Credit lines such as Zip’s business loans are especially attractive to companies with unpredictable cash flows, as they act as a buffer to fill the working capital gap and are not obliged to run out of all available funds. As the business grows or slows, lenders may also offer the option to increase or decrease facility limits in response to changing circumstances.
However, this flexibility comes at a cost. You may need to take into account additional charges such as drawdown fees (charged each time you withdraw from the facility) and line fees (charged to keep the facility open).
- Turn unpaid invoices into funds
- Suitable for business with corporate customers
- Guarantee against the invoice itself
According to a survey, slow customer payments are a huge pain for SMEs, and accounting platform MYOB revealed last year that 38% of SMEs face financial stress due to late payments. Invoice finance is a way around this.
Invoice finance is a credit line that allows access to capital bound within unpaid business invoices. Lenders typically prepaid up to 85% of their invoices, pay the customer, and then remit the rest (fees and fees minus fees) later.
Fortunately, invoice financing is usually protected against the invoice itself, so there is no need to pledge other assets as collateral. However, all invoices are charged and can be more expensive than traditional bank loans.
Buy now, pay later
- Zero interest (with fees)
- Rapid approval time
- Installment payment
Buy Now Pay Later (BNPL) services have exploded very well over the past year, but consumers aren’t the only ones enthusiastic. Business owners, especially young entrepreneurs, are the next big target market for an ever-growing number of BNPL providers.
Like credit lines, BNPL allows you to borrow as much as you need, up to a certain amount. However, the difference (and its main selling point) is that the withdrawn funds are not subject to interest and only fees apply. The borrowed amount will be repaid in a series of fixed installments.
For example, Zip recently announced two interest-free BNPL accounts. One is Zip Business Trade, which gives you access to up to A $ 3,000 for daily expenses such as office supplies and social media advertising, and the other is Zip Business Trade Plus. For bulk purchases, including inventory and equipment, a much higher cap of A $ 150,000 applies. The first account costs only AU $ 12 per month and there is no ongoing fee for the second account, but 3% if you choose to split the repayment into 4 months instead of 2 months. There is a fee.
Expect a quick approval process, as these BNPL accounts have less cash infusions than the other business loans described above. 10 minutes for Zip Business Trade and 24 business hours for Zip Business Trade Plus.
Advice before applying for a business loan
Whatever type of business loan you ultimately choose, always keep in mind the following:
- Check your eligibility criteria: Many lenders require your business to be trading in a minimum amount of time or making more than a certain amount of revenue, which can be negotiable.
- Borrow responsibly: It doesn’t mean that you can borrow as much as you want. So, unless you’ve deducted the line of credit, look at your budget to figure out exactly how much additional money you’ll need and how much you’ll be repaying (and whether you can afford it in reality). It is beneficial to do.
- Understand fees: It’s time to dig into the details. Check what fees may be charged in addition to interest rates. Common things to watch out for include establishment, renewal, late payments, early repayments, and move-out fees. Also, check if these fees are flat-based or percentage-based. Note that in the latter case, the cost increases as the amount borrowed increases.
- Weigh bells and whistles: Do you need the option to repay early without penalty or are you free to change your repayment schedule based on cash flow? Some lenders offer these benefits to make them more competitive. It is worth paying attention to additional features when shopping.
- to shop: Instead of going with the first lender you find, use a business loan comparison site such as Mozo to consider your options. According to the Mozo database, interest rates at banks range from 2.29% per year to nearly 10%.
Ready to apply? Check out Mozo’s list Australia’s Top Business Loans..
https://www.techradar.com/news/most-popular-business-loan-types-in-australia/ These are the most popular types of business loans in Australia