When requiring finance, businesses are faced with a range of options in regard to the type of loan and which lender to go with. The business finance sector includes multiple lenders and a large selection of different commercial loan products. With some loans running over lengthy finance terms and with interest rates varying across different finance products, decisions around selecting the right business loan can have significant impacts on the business moving forward.
Referring to your accountant or financial advisor is always an astute move but having a solid, general knowledge of commercial loans yourself can be extremely valuable. To assist business owners in making decisions around which is the right business loan for their specific needs, we’ve provided this general guide to better understanding business finance.
Business Finance by Function
When sourcing finance most business owners will ask ‘what is the right
business loan option for me?’ While not extremely informative, the correct answer is simple – the loan that meets your financial objectives. Yes, more detail is required so we will elaborate.
While lenders will usually classify business loans by their finance terminology, we have provided this guide to which loan is most usually best suited for which type of purchase or need. It’s finance by function.
Asset Acquisitions Including Equipment, Trucks, and Cars
The most common need for finance for business is for the acquisition of assets. The purchase of
commercial equipment loans, plant and machinery, motor vehicles, trucks, and other types of assets. For this type of purchase, businesses have the choice of a number of loan types, known as commercial finance facilities. Several finance options include;
These have varying features in regard to suitability for either
accruals or cash accounting,
treatment of GST and tax, and
balance sheet entries, and ownership of the asset over the finance term. We’ve provided details of each of these on dedicated websites.
If you are considering taking advantage of
government measures for accelerated asset depreciation, then Chattel Mortgage is best suited for that purpose.
Non-Asset Business Purchase
The loan products for asset purchases are essentially loans that are secured against the asset itself. So they are not necessarily suited for the purchase or expenditure on non-tangible items. There can be any number of purposes for which businesses require commercial loans for non-asset purchases: acquiring stock; training and development; technology for say digital enablement which is not considered under business equipment finance; refurbishing or premises improvements not covered by equipment loans; the cost of major events or activations; financing marketing campaigns; and many other purposes.
The general choices of business loans for these purposes may be:-
- Secured Business Loans: a general loan to a business that is secured against other property or assets rather than the item being purchased. A business owner may secure finance against property such as a home or other assets held by the business such as a car loan.
- Small Business Loans in Australia: can be secured or unsecured but this category usually covers small loan amounts for general purposes.
- Unsecured Business Loans: as the name implies, this type of loan is a general loan that does not include security.
On approval, both these commercial loans would have a similar format where a loan would be extended for a fixed loan term, usually at a fixed interest rate and with fixed monthly repayments. An unsecured loan would by its nature attract a higher interest rate.
Cash Flow Support
At one time or another, many businesses face the prospect of requiring additional finance to cover general expenses and the running costs of the business. The need can be more short-term and as such not suited to a secured or unsecured business loan. For this purpose, there are a number of options for both general and more specific requirements.
- Business Overdraft Lending: most business owners understand how an overdraft works but many don’t realise that banks are not the only lenders that offer this type of business finance. Select non-bank lenders for businesses also provide overdrafts which may present a very attractive option for many businesses, especially if the bank says NO!
- Invoice Finance: if your recurring cash flow issues are a result of your customers taking too long to pay you, then this is a possible option to consider. Get in touch with our finance brokers to see how we can help improve Invoice Financing for your business's cash flow.
- Insurance Premium Funding: this is a specialist type of commercial loan which allows businesses to spread the payment of large insurance premiums over several installments rather than have to find the funds to make the payment annually.
Business Loan Deciding Factors
Deciding which of these loans is right for your business for your particular purpose, here are a few factors to consider:-
- Secured or unsecured: are you purchasing an asset that can be used as security or do you require funding for other purposes.
- Tax benefits for organisations: take into account the tax benefits and implications of each loan product.
- Accounting aspects: which business loan suits your accounting systems and your financial objectives.
- Interest rates for commercial finance: rates vary across commercial loans and this may influence your decision. Refer to our online business loan calculator to get a more informed idea.
- Loan term: some business finance products have thresholds in regard to the finance term that lenders will offer.
- Eligibility: does your business meet the loan criteria? If not, you may need to pursue a Low Doc Business Loans, No Docs, or ABN-only option.
- Lender: do you have access to the right lender for the right loan?
Engage with us for assistance in accessing both banks and non-bank lenders.
Sourcing Commercial Loans
At Business Finance, our expert team specialise in all types of commercial loans for all types of businesses. We are available to answer your questions and we’ll be covering more topics around business loans in future articles.
To discuss your requirements contact our brokers on 1300 000 033
DISCLAIMER: THE SPECIFIC PURPOSE IN PROVIDING THIS ARTICLE IS FOR GENERAL INFORMATION ONLY. IT IS NOT INTENDED AS THE SOLE SOURCE OF FINANCIAL INFORMATION ON WHICH TO MAKE FINANCIAL DECISIONS. THOSE THAT CONSIDER THEY REQUIRE ADVICE OR GUIDANCE AROUND THEIR SPECIFIC FINANCIAL CIRCUMSTANCES ARE RECOMMENDED TO CONSULT WITH A FINANCIAL ADVISOR. NO LIABILITY IS ACCEPTED IN REGARD TO ANY MISREPRESENTATIONS OR ANY ERRORS RE ANY DATA, SPECIFICS, POLICIES AND OTHER INFORMATION AS SOURCED FROM OTHERS.
