When it comes to business lending there are many lenders, many options and a broad scale of rates associated with the products.
Ultimately, to obtain a loan to buy or start a business it all has to do with the specifics of what you are funding. Here we will explain some of the ways business loans are used.
Purchase of a business
When buying a business, it’s good to break up your funding requirements into their parts. For example, a business purchase may have included in the purchase price a component for Goodwill (business value) and a component for Plant and Equipment (its fixed assets). Each of these can be funded separately and combining them together may not be the best way to purchase.
In the above scenario we will usually recommend a secured or unsecured business term loan to fund the goodwill purchase. This is a simple loan paid off over time and is usually secured by real property (such as your home) or by the business itself.
To buy the equipment of the business we can look at Asset Finance. Here the equipment itself becomes the security for the proposed loan and we can make sure the loan term and interest rates match profile of the asset being used as security.
Business Start-up
When it comes to a start up again, we look at what is required for the business to start trading profitably.
Here we most often see the need for equipment and working capital.
Again, there is no one size fits all solution, so we tend to look at asset finance per the above example to fund business equipment, and any items that have no real value such as office fit out (paint, carpets and cabinetry) we may use a business term loan.
For working capital, we have many options and it depends on the type of business (retail, wholesale, service etc) to provide a solution the fits.
In some cases, a simple overdraft isn’t the best option, as hard-core debt tends to build up in these facilities overtime.
Tailored working capital solutions are fast becoming the best way to approach a business’s working capital requirements. Facilities may include a combination of products including
· Trade Finance (funding the invoices to be paid by you),
· Debtor Funding (funding the invoices you issue to you clients),
· Client payment plans (allowing you to receive full value of invoice up front but your client to pay off over time), or,
· Short term business loans, when the funding required is for a specific event and only required for a limited time.
Overall what is required before approaching a bank is to have a plan of what you are trying to achieve and finance forms part of this plan.
Our local experts have helped many Perth businesses achieve their Enjoy Factor of a profitable business that gives them the freedom to work when and how they want.
If you are looking at buying or starting a business please request a meeting with one of our consultants to ensure that you end up with the right level of debt and the right product mix. This will ensure your business isn’t hamstrung by debt, but debt becomes a tool that helps you grow.
Speak to consultant today .