Which Type Of Business Loan Is Right For You?
Business loans are varied in repayment structure, interest rates and fees and require differing levels of expertise to negotiate successfully. Below are some details of some of the most common business loans.
Unsecured Business Loans
These range from short term loans based on the turnover of your business. You do not need to offer any form of security and to the lender however the loan term is generally over no more than 12 months. These loans are ideal for fixing those unforeseen circumstances when you need cash quickly. For example, you may have a machinery breakdown; an urgent bill to pay or an opportunity to purchase stock at a great price.
Business Loans Secured By Your Home
These are very common for small to medium size businesses. This is fantastic from the bank’s point of view as they have you, the client, in a corner. It’s the best possible security from the lender’s point of view but often the client does not receive any tangible benefit – that is they are still charged commercial rates and loan terms are often far shorter than a home loan for example which may put additional cash flow pressures on your business.
Business Loans Secured By Commercial Property
These loans are often providing the best balance between keeping the lender happy and giving you the comfort of knowing that your family home is not securing your business. It is important to realise though that the lender may still seek security over your family home for “added comfort” but this does not have to be the case. It’s important to understand the lenders pricing and security guidelines when you negotiate these loans in order to ensure you get the best outcome for you.
Many businesses grow their business very successfully by leveraging their account receivables to improve their cashflow and ramp up their buying power. This form of lending known as “invoice discounting” is a great way to facilitate growth in your business. The facility does not have a limit like an overdraft but rather the limit grows as your business grows. This is product is widely used by businesses of all sizes and often it is confidential – so your client may not even know.
If you are importing goods from overseas there are loans that can fund those purchases for you whilst your goods are ‘on the water’ for example and extending the time that you have to pay your vendor. This can mean significant improvements to your cash flow and may well allow you to grow your business more efficiently or indeed just meet current demands from your clients.