Have you been wanting to start up your own business? Do you require a business loan to get started and get your foot in the door? Business loans are a beneficial tool in assisting you in beginning the business you have always dreamed of, no matter whether you require it to renovate your business space or get started with initial advertising campaigns.
Business loans can be a valuable tool for entrepreneurs and businesses, but navigating the loan process can be complex. This comprehensive guide will provide an overview of the different types of business loans and tips for securing the right loan for your business.
What is a Business Loan?
If you are considering starting up a business loan, it is important to understand the ins and outs of a business loan before preparing to apply. In many circumstances, a business may require a loan for things they cannot currently afford to pay for outright. This may include investing in new equipment for the company, renovating or purchasing a new company property, relevant start-up costs, inventory and stock, paying off money and paying staff salaries.
Types of Business Loans
There is a multitude of loan types to consider when you are beginning the process of researching and understanding your options. The best business loans will be dependent on your specific business needs and the goals you are aiming to achieve. Here are some examples of the most common business loan types:
Line of credit
Line of credit is a popular business loan option that offers financial funding which allows the company to draw on an account balance up to a predetermined amount. A line of credit is often used in situations where a company is experiencing cash flow gaps as they are extremely versatile and adaptable. The interest rate for a line of credit is generally a smaller percentage than on an overdraft and is paid back over a smaller period of time. If repayments are missed, this may result in the repossession of the protected asset.
A business overdraft allows the owner of an account to continue to withdraw money once the account has no funds. A business overdraft is considered a roll-over loan that connects your pre-approved overdraft limit to your business account, allowing you to use funds for business purposes.
Business Term Loan
A business term loan is a lump sum amount that is used to cover one-off larger expenses. A business term loan is usually implemented over a fixed time period with regular repayments and is generally backed by an asset.
Factoring is the process in which a factoring firm purchases a business’s outstanding invoices at a discounted rate which are then pursued by the firm, providing a quick way to receive cash.
Development finance is a loan that is exclusively used for renovations or new buildings for a business site and/or land.
Fully Drawn Cash Advance
A fully drawn cash advance provides immediate access to funds in the form of a business loan useful for long-term investments.
Commercial Bill or Bill of Exchange
A commercial bill or bill of exchange is a short-term, unsecured loan that is provided and is generally used for business expenses such as inventory.
It is important to consider the advantages and disadvantages of each loan type, to ensure the advantages outweigh the disadvantages for your specific circumstances and business needs. As a whole, advantages of a business loan can include the possible borrowing power, the control over the borrowing amount and being easily accessible. A mortgage broker can work with you to assist in making the decision process more simplified and stress-free.
Preparing for a Business Loan
Once you have decided you are wishing to apply for a business loan, it is important to prepare your business finances in advance. This allows you to have a solid understanding of where your business finances are currently at and will assist you in identifying what is required to get to where you need to be.
Before applying for a business loan, you may wish to consider your credit score and your current cash flow. In some circumstances, it is possible that these metrics may play a role in your eligibility and the success of securing your business loan.
When preparing to apply for your business loan, it may be beneficial to compare business loans to ensure you are choosing the best option for your needs. This is where a mortgage broker comes in, as they have access to a variety of business loan options, ensuring you have access to all available options.
Securing a Business Loan
Securing a business loan is an exciting time as it is often the next step for your growing business! In order to make the process of applying as simple as possible, it is important to understand the documentation requirements and how to choose the best lender for your requirements. To begin the application process, your personal credit and company credit will be considered alongside your individual income as this can impact your overall financial situation. Other documentation and factors that may be considered within the application process include your business certification to ensure you have an ABN, business debt coverage, details of your business and guarantor contribution.
Liaising with a broker will assist you in having the best chance of securing a business loan. A broker will work with you throughout the entirety of the application process to ensure every requirement is met and you understand the relevant terms and costs associated with your business loan.