June 12, 2020
When should I consider a loan for my business?
While rewarding, owning a business can be overwhelming – especially when it comes to finances. Many small business owners face the challenge of finding sufficient funds to invest in the growth of their business. This is where tailored business finance can come in handy.
From training new staff through to renovating or purchasing your premises, business finance can often be the only way for your business to grow.
Let’s have a look at some of the different options available specifically to small business owners and how they might get you to the next stage of your business.
Small business loans
Small business loans are generally used to cover one-off expenses that will improve the earning potential of the business. This could include things like paying for staff training, buying a piece of new equipment or renovating existing facilities. These are all things that can pay off for you in the long run!
With the wide range of loans & structures available, you’re likely to find something that suits your budget & cash flow. You might choose a loan that’s structured to accommodate the entire loan amount to be withdrawn at once, or you may prefer a staggered drawdown of funds - there’s plenty of options to choose from.
Small business loans are highly flexible, which can be very suitable for any business owners looking to fund smaller purchases or improvements. They do, however, often need to be secured against an asset which can put that asset in danger of possession should you miss payments.
Small business loans can also be used to prop up cash flow or provide working capital. While this might be necessary to the day-to-day running of the business, it’s important to understand the effects of getting a loan will have.
Chat to your financial adviser about the reasons for taking out a loan to supplement cash flow to ensure that you’re building a sustainable business model in the long run.
Equipment & vehicle finance
If the goal of business finance is to secure a new piece of equipment, another popular option is using equipment finance. Equipment finance allows you to essentially rent or lease the item for a set period of time, rather than coming up with a large sum to purchase the item outright. This form of finance can be used to access new vehicles, trucks, CRM technology, IT hardware, machinery or any other type of equipment.
There is a wide range of equipment finance options on the market – from renting to own through to finance leases, which are most popular with company fleet vehicles.
The most popular types of equipment finance are:
- Rent to own: Should you wish to own the item at the end of the contract, the rent to own structure would suit you nicely – helping you avoid a big outlay of funds, but also allowing your business to keep the necessary equipment when the contract is complete.
- Finance lease: For businesses which simply need to use the vehicle until a certain period or would like to update every few years – a finance lease arrangement would be more suitable. Rather than owning the item or vehicle at the end of the contract, the business could re-negotiate terms or opt to lease a new item. This enables businesses to have access to the latest technology without constantly spending capital.
- Equipment loan: There are some tax advantages to the equipment loan, which is a fixed interest loan secured by a mortgage on the asset. This loan does not require GST to be paid on loan repayments, which can have some significant tax advantages.
Commercial property loan
If your team is growing, or you’re just starting out, leasing your premises can be a handy option. However, many business owners would rather the security of owning their own property. It allows you the security to plan long term in the same location, as well as the flexibility to make improvements knowing that your investment will benefit your business alone.
One of the best parts of owning your own premises is that the property becomes an asset for your business, and rather than paying off your landlord’s mortgage, you can use the cash flow from your business to pay off your own.
Of course, investing in commercial property is a long term investment, with interest owed on the loan repayments. It’s important to do conservative numbers on your cash flow to ensure that you & your business can repay the debt.
Using your own home as security
Many business owners use their own home as security on a business loan. But this can mean that should you find you can no longer repay the loan, your house is in danger of being sold by the bank. This would mean that on top of your closed business, you could also lose your home.
And while a secured loan usually comes with better terms for your business than an unsecured one, it’s important to know that your house isn’t the only asset you can use to secure the loan. The current value of your existing business, the equipment you already own and other assets could be used to secure the loan and receive the favourable terms you’re chasing.
We understand small business
Many small businesses will hold off on investing in their business due to lack of capital, delaying business growth. We love seeing business invest in themselves, but it must be done wisely – so that the finance will benefit your business in the long run and not harm it.
Let us help you! As small business owners ourselves, Mortgage Choice brokers understand the importance of finding the right business finance to suit you & your cash flow.
