How to Select a Business Loan
This article was published by MFAA.
There are different types of business loans to suit different stages of a business lifecycle and different business needs, and selecting the right one can speed up the application process and minimise costs.
Finance for a start-up
For a startup company with no trading business or cash flow, it can be quite difficult to secure a business loan. An alternative is to take out an investment loan against the equity of your home or property.
“A lot of the banks don’t have much of an appetite for startups, so an investment loan would be a good alternative for anyone wanting to fund a new venture,” advises the finance broker. “It provides flexibility and you’re more likely to secure approval.”
Finance for quick cash flow
Similar to a line of credit, a business overdraft can be drawn down to a certain limit, but is specifically a commercial loan that is priced accordingly - and more favourably for the business. A great option for those unspecified cash flow requirements that go with owning a business, it provides the flexibility of accessing funds without much prescription.
“There are a lot of unknowns that arise in business that even the best business plans can’t cater for,” says the finance broker. “This type of financing takes care of those unforeseen things.”
Finance for expansion or investment
Aimed at funding long-term investments, term loans are ideal for business expansion. They’re fully drawn advances for a fixed length of time with scheduled repayments. Normally secured against a valuable asset, term loans are commonly used for purchasing new equipment or moving to larger premises.
There is also the option of lease finance for those who require equipment upgrade but don’t particularly want to own it. “Lease finance is typically used for office equipment, photocopiers and such that you don’t need to ultimately own because it gets superseded,” advises the finance broker. “Anything that requires a continued trade up to a new model.”
Regardless of what kind of business you are financing, it’s always important to have a good business plan. “Try to have an accurate cash flow forecast and implement a good exit strategy,” the finance broker says. “Lenders want to see what you would have in place if things don’t go to plan; that’s how they make their decisions.”
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Thanks,
Darren