Think HBR

Business Loan Shake-up: an essential checklist for business owners

No matter how big or small your business, some level of debt is part of the deal to assist with cash flow. Or perhaps you’re looking to expand. A simple internet search will present you with a multitude of options. And I’m probably not the only one peppered by ads for same-day finance and unsecured loans from $5,000 to $200,000.
The arrival of new and alternative lenders has certainly expanded opportunities for businesses to access finance. But before you apply for a loan, make sure you review some essential questions with your accountant, broker or financial planner to determine what sort of lender and loan will provide peace of mind for you and your business.
• How much money do you need and what is it for?
• How quickly do you need it?
• How long will it take you to pay back?
• How long have you been in business?
• What is the current financial shape of your business?
• How much collateral do you need, if any?
If you’re not up-to-date on new or alternative options in the business lending space, read on for a summary.
P2P Lending (peer-to-peer) is a finance alternative that’s gaining traction in Australia, however the US and UK have used this model for many years. It typically involves an online application that matches the borrower and their needs to a range of willing lenders, who might be individuals or companies. It’s not unlike the concept of crowd funding.
Fintech is considered a ‘disruptive’ mortgage platform, in other words it’s shaking up the industry like brokers and nonbank lenders did when they first brought competition to the banks. Fintech providers typically utilise the massive amount of data stored in a client’s accounting and software systems to analyse the cash flow and health of a business. Online analytic tools provide access to immediate funding and in certain circumstances can determine future cash flow requirements, ensuring funds are ready when they’re needed.
Merchant or EFTPOS cash advances allow a business to sell a portion of their future EFTPOS sales, often between 50 and 250% of monthly credit card volume. The business repays the advance through a fixed percentage of future EFTPOS sales until the debt is cleared.
Bad credit or non-conforming loans carry higher interest rates than the bank rate, to mitigate a higher risk. For example, a business may not have two years of full financial reports or might require a higher loan-to-value ratio. Or perhaps it doesn’t fit the approval matrix of the major lenders. Australia now has a range of lenders specialising in these loans. But before you consider this path you should revert to our essential checklist of questions to ensure that any premium you pay in rates, fees or charges is met by expected additional profit after the capital injection.
While the current industry shake up is nothing to fear, it does require careful consideration to find the best fit for your business.
Sean Gillard2 Sean Gillard
Is a Partner at Crosbie Finance. He has 17 years experience in finance and a vast network of industry contacts. He offers one of the most extensive arrays of lenders and products in the industry, covering business, investment, home, equipment and Self Managed Super Fund loans.