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Ultimate Guide to Business Loans

Chapter 1

What is a business loan?

Chapter 2

Advantages & Disadvantages of business loans

Chapter 3

Should I get a Business Loan?

Chapter 4

What are the different types of business loans?

Chapter 5

How to compare business loans?

Chapter 6

How to lower interest rates?

Chapter 7

Ways to reduce your monthly repayments

Chapter 8

How to apply for a business loan?

chapter 1

What Is a Business Loan?

Cash for your business when you need it

When you’re running a business; maintaining cash flow, inventory and stock, maintaining and upgrading equipment, hiring staff, are all integral factors to your businesses success. Sometimes an opportunity comes along that’s too good to pass up. You may have an opportunity to buy out a competitor, or take on a large work contract that you don’t currently have the facilities to fulfil. Missing out on opportunities can have drastic long term affects and severely hinder the growth of your business.

When an opportunity comes along, you can’t pass it up, and often some form of business loan is required to make things happen.

Bank or Broker?

The main difference between a car loan and a personal loan, is a personal loan is usually un-secured (no collateral attached) and a personal loan can be used for any purpose. Personal loans can be used for debt consolidation, going on a holiday, renovations, or any other purpose.

chapter 2

Advantages & Disadvantages of Business Loans

Advantages

Quick turnaround times

When you’re in business, any delays in attaining funds when you need it can be costly. When you get a business loan through a broker your needs will be looked after and timelines met in a way that will exceed expectations

Competitive interest rates

With a business loan, all the choices are still yours. It’s up to you how much you borrow, how long you take out the finance for, and most of our loans provide you the option of making additional repayments to reduce your interest expense and pay out your loan early.

Flexible lending terms

The lower risk the transaction, the lower the interest rate the lender will offer. A broker will work with you to present the application in a way that presents the lowest risk to the lender. If you have available equity in your home, in many cases your broker will request your property to be used as security. This means the transaction is significantly lower risk for the lender, therefore entitling you to an interest rate comparable with what you’re paying on your mortgage.

Disadvantages

Documentation with the banks can be quite stringent

The banks process often doesn’t differ between providing finance for large or small businesses. If you’re a small business looking to borrow a relatively small amount, the documentation required and arduous process provided by the banks can be very time consuming to say the least.

Navigating the strict lending rules can be tricky

When you take out a business loan, there are some restrictions. All lenders have different guidelines around the types of business they finance, some have guidelines around LVR (Loan to Value Ratio. i.e. the amount of money you’re borrowing vs. the value of the asset being offered as security). some will finance start up business, some won’t, and some lenders will only finance equipment through dealer sale transactions and restrict you from financing through a private sale. All of this, combined with the fact that all lenders have a different risk appetite in terms of the types of clients they finance can make it very hard for the majority of people to know which lender has the best deal for their situation

chapter 3

Should I Get a Business Loan?

How a business loan can help your business grow faster

Need equipment?

Whether it’s simple tooling or large machinery, for many businesses equipment is the main asset driving the productivity and income generation for your business. A lot of heavy machinery can be quite expensive, and taking the time to save to purchase the equipment with cash can be time consuming which will hinder your businesses growth.

Don’t want to miss out on an opportunity?

Sometimes an opportunity comes along that’s too good to pass up. You may have an opportunity to buy out a competitor, or take on a large work contract that you don’t currently have the facilities, or the staff to fulfil. Missing out on opportunities can have drastic long term affects and severely hinder the growth of your business. When an opportunity comes along, you can’t pass it up, and often some form of business loan is required to make things happen.

Need inventory or stock?

Have sales been well lately? Do you have a large accounts receivable but not much cash? Don’t let a lack of stock slow down the growth of your business. When sales are going great you need to keep riding that wave. If you wait for your accounts receivable to be rectified to purchase new stock, you could risk losing clients to your competitors. Talk to a broker about how your accounts receivable can be turned into new stock for your business today.

Cash flow an issue?

Sometimes business can be going great, but you could have a large portion of your working capital tied up in accounts receivable. 90 day accounts can be great for building a client base, as it offers your customers convenience, however it can cause issues with cash flow sometimes. Don’t let periodic cash flow issues hinder the growth of your business. Talk to a broker today to find out how your accounts receivable can be turned into cash for your business today.

Why Choose Credit Capital Business Loans?

If you’re a small to medium sized business, quite often the process with the big banks can be quite tricky.

They don’t differentiate their process between large and small business transactions, so quite often the process can be quite long an arduous. Unless you’re looking to borrow millions, quite often you’re just a drop in the ocean with the big banks and they don’t work for your business like we do.

Our business loans offer quick turnaround times, and flexible repayment options that can be tailored to meet your needs.

How are Credit Capital Business Loans Different?

Some brokers will narrow down your application to a few different lenders, apply to each one and see which one comes out best.

Although this may sound like good practice, it can have a seriously negative impact on your credit score.

What most people don’t know, is that every time a formal application is presented through to a lender, the enquiry will be listed on your credit file and lower your credit score.

If you have several enquiries listed in a short space of time, this could lower your credit score to the same level as someone who has a collection of defaults on their credit file, making it near impossible to get you the low interest rate you truly deserve.

We protect your credit score

At Credit Capital, as we pride ourselves on building lifelong relationships with our clients, we go above and beyond to ensure that your credit score is looked after. We do all the work ourselves up front, before submitting an application to a lender, to ensure that who we apply to is 100% the best lender for your individual circumstances, and the approval is almost guaranteed.

chapter 4

What are the Different Types of Business Loans?

Unsecured Business Loan

Similar to a personal loan, you apply for a loan amount, there is no security, and you can do what you want with the money. Some businesses use this type of loan for hiring staff, purchasing stock, to cover cash flow fluctuations, or for any other new business opportunity. This type of loan offers flexible terms and flexible repayment options. Small businesses that don’t meet the banks rigorous lending criteria are easily able to access this type of finance, and are often able to attain same day approval. Being unsecured however, the rates can be higher than unsecured loans, and often a personal guarantee is required.

Line of Credit

A line of credit is an amount of money made available for you to access at any time as needed. A line of credit is usually secured, but unsecured options exist as well. Once the line of credit has been set up, you draw down funds as required, and you usually only pay interest on the drawn down amount, not the entire facility. A line of credit is extremely flexible as you only draw down what you need, when you need it, however the lender can withhold the right to cancel the facility at any time and is repayable on demand if the lender feels the risk has become too high.

Invoice Financing/Factoring

Invoice financing is where you essentially sell your invoices to a lender. The lender pays you immediately up to 90% of the invoiced amount, and they become responsible for collecting payment. There are minimum turnover requirements and this product wouldn’t be available to new businesses as an established sales history is usually required. The main benefits are an immediate injection of cash, no waiting for invoices to be paid, no risk of non-payment of invoices. This product is ideal for covering short term cash flow issues.

chapter 5

How to Compare Business Loans?

Don't focus on rate

We hear it all the time, when people are shopping around for finance, they call up and ask, “what is the rate?” Although this is an important factor when calculating your cost of loan, it is only one of many factors to consider when comparing different business loans. “Time is money” is a saying we hear all the time, and it’s never more true than when you’re running a business. An extra week, or even just an extra few days awaiting funds to be approved, could be the difference between you being able to take on that large job you’ve been fighting for, or missing out completely.

Opportunities for you to grow your business quicker than originally projected don’t come by too often, meaning missing out can have a drastic flow on affect. Sometimes short term funding, even if it’s at a higher rate, can earn you significantly more in the long run and present as a much better option than a lower rate option that could’ve taken longer to approve due to a property encumbrance being required.

We compare more so you save more

At Credit Capital, with access to more than 25 of Australia’s major business finance lenders, we compare more so you save more.

We are independent and privately owned, so give unbiased advice when it comes to getting you the best deal.

We work for a flat service fee which is included within the set up costs of your loan, and the fee doesn’t change if we attain a higher or lower interest rate for you.

This makes it very easy for you to compare our repayment with others to see which deal is best for you.

You don’t pay anything up front, and the fee is only applied if you get a loan through us, meaning if we don’t earn your business, we don’t get paid. This makes it in our best interest to get you the best deal, every time, so we can earn your business for life.

Focus on what it would cost if you miss out

Rather than focusing on rate and what the loan will cost you, the main focus should be what it would cost you instead if you didn’t take the loan. Weigh up the cost benefit of your cost of loan vs. the cost of missing out. Say for example, you’re a small catering business specialising in private functions and small parties. You get an opportunity to cater for a large wedding, it will not only bring in a very healthy pay day, but it will also generate much greater awareness of your business and broaden your scope allowing you to take on much more work. You need to purchase new equipment and hire new staff. A short term loan can be costly with fees and interest, however the cost of missing out on the opportunity will be much greater. In the majority of circumstances, the growth the loan will provide will be significantly greater than any amount payable as fees and interest on the loan.

chapter 6

How to Lower Interest Rates?

Rate for risk

It’s a saying you’ve probably heard so many times by now that it’s almost lost all meaning. But when it comes to finance, the interest rate the lender applies varies based on the risk of the application. The higher risk the application, the more likely you are to default, or the less likely the lender will be able to recover their loss if the loan is defaulted, the more the lender has to charge to offset their risk.

Lowering your risk

To lower your interest rate you need to lower your risk. There are many factors that lenders look at when calculating the risk of your application. How long have you been in business? How is your business structured? Does your business have multiple directors? Are all directors asset backed with a clean credit history? Residential history is important as well. Whether you’re renting, boarding, have a mortgage, or own your property outright, are all taken into account by the lender to calculate your risk. Some factors you won’t have much control over, there are some things though that you can control.

How to lower risk

Type of asset – If you’re purchasing equipment, lenders see new assets as lower risk compared with used assets. This is due to the fact that a brand new asset will hold more value, therefore the lender will have a greater chance of recovering their loss if they have to repossess the asset. Also new equipment generally has lower running costs, so the fact you will less likely receive unnexpected maintenance bills during the life of the loan means it is more likely you will be able to keep up with the repayments on your loan.

LVR (Loan to Value Ratio) – The loan to value ratio is calculated based upon the amount of money you are borrowing vs. the value of the asset being offered is security. LVR is calculated as a percentage e.g. if LVR is 80%, that means you are borrowing 80% of the value of the asset being offered as security. The lower the LVR, the lower risk the application is for the lender, as they will have a much greater chance of recovering their loss if the loan is defaulted. The best way to have low LVR and a low risk aplication, is by offering property as security to the loan.

Deposit – By providing a deposit towards the loan you can significantly lower the risk of the application. By doing this, you’re not only reducing LVR, but you’re also showing some commitment from your end. If you commit some of your own hard earned savings to the loan, rather than just spending all of the banks money, you’re demonstrating your devotion to paying for the loan.

chapter 7

Ways to Reduce Your Monthly Repayments

Borrow Less

It may sound simple, but the less you borrow, the lower your repayments will be. Instead of just picking a round number as a loan amount, take the time to work out exactly how much you need to borrow and take the most minimal amount possible. If you’re financing equipment or machinery, take the time to shop around and ensure you’re getting the best deal for the asset you’re purchasing. Savings up front add up to even more savings down the track.

Extend the loan term

Many lenders these days will allow you to finance the some assets up to 7 years. The longer period you extend the finance for, the lower your repayments will be. This can be a great option if you don’t want the repayment to have as much of an impact on your budget, however a longer term can also mean you will pay more in interest. Speak to one of our professional consultants today to get free general advice on what might work best for you.

Residual/Balloon payment

Depending on the type of transaction, and type of asset being financed, a residual, or balloon payment can sometimes be an option. By having a residual or balloon payment at the end of the loan, you will be making payments on a smaller amount over the life of the loan. Just make sure you plan ahead and you have certainty around how the balloon will be paid at the end of the loan.

Refinance/Consolidate

Having multiple debt payments can be tricky to manage and could mean a high level of payments each month. If you consolidate multiple accounts into one, especially if it is being consolidated with property, you will have the option of extending the finance over a much longer period therefore reducing your monthly repayments significantly. Be aware that utilising this option can increase your cost of debt, as taking the finance over a longer term usually means more interest is accrued. However, if cash flow is a more immediate concern than interest expense over the long term, this option can certainly be very useful.

chapter 8

How to apply for a business loan

The process will vary depending on the type of product and purpose of the loan. The main things we require upfront are listed below.

1. Collect business information

ABN
Business Structure
Industry
Turnover and profit
Time in business
Requirements (how much you need and what you need it for)

2. Statements and Financials

Depending on your time in business and the type of product you are applying for, we will need documentation to approve the finance. This can be as little as ID for low doc loans, however it can be more complex for other types of transactions. Other required documents could include

Last 2 years tax returns
3 – 6 months bank statements
EFTPOS statements for last 3 – 6months
BAS statements
Profit and Loss statements
Cash flow projections

3. Prepare Documentation

When it comes to taking out finance, there is no such thing as too much documentation. We will always strive to make the process as smooth as possible with the minimum amount of documentation, however, the more prepared you are, the quicker we can make the process for you. Be prepared with IDs, residential and employment histories, payslips, or tax returns and profit and loss statements if you’re self-employed. The more prepared you are the more efficient we are.

4. Speak to a Professional and apply

Once you know the above, enquire online or call us directly and we can help you with the rest. If there’s anything above you need assistance with, not to worry, our devoted team can answer all your questions and find the deal that best suits your requirements. We can guide you along the way no matter how early, or late, in the process you are. We put your mind at ease and make finding the best deal easy from start to finish.