People look at some business loans in a negative way. Many borrowers in the past have been victimised because they are normally easy to access and carry high interest rates. However, a business loan may be the best option when compared side by side with traditional financing products and taking into account the short term obligations and opportunities that confront majority of small businesses.
Here are 5 ways that unsecured loans could secure your business:
Swift access to money when businesses need it
Maybe your business faces hard times and need funds immediately, or maybe an opportunity appears that requires your business to have more funds than you currently have. It could take some time for you to get approved for a traditional bank loan if any discrepancy is found in your application or your credit history is not up to par. The truth is that some micro businesses must be paid on time. In these circumstances, a business loan, which you can get a hold of within 24 hours, is very handy.
Pay lower overall
Compared to traditional business loans, the repayment amounts for unsecured business loans are typically higher. However, it does not mean that you have to pay more.
For example, you take out a loan of $50,000 from any major lenders in Australia to buy a new piece of equipment. The interest rate will vary but for commercial equipment, the rate could be about 9%, and the term of your loan is over 10 years. You can expect to have paid about $25,000 in interest by the time you have made your final repayment.
On the other hand, you take out a business loan for the same amount of $50,000. You have some money but not enough to cover the full amount of the new piece of equipment. If you take a loan over a 12 month period, the amount of interest would reach about $9,000. Simply put, it is often better to opt for a shorter term than a lower interest rate, thus making a business loan more affordable in general.
Your particular situation will determine the right option for your business. If you have no money available at all, it may not be easy to pay a loan over 12 months. But if an investment presents itself to you, there are benefits to be gained from approaching business loan lenders.
Increase credit score for future loans
The difficulty in accessing funds because of poor cash flow or a low credit score is one of the major inhibitors to small business growth. Applying for a smaller, more manageable business loan that fits your business cash flow is one of the easiest ways to increase your credit score as well as raise your chances of getting approved for bigger loans in the future.
Short term depreciation of assets
For example, you are a window cleaning business operator and you borrow to buy new ropes, harnesses and safety equipment. These pieces of equipment would become old within a year if used regularly.
If you take out a business loan, you can structure the repayments based on the useful life of the items. Alternatively, a long term loan would require you to continue making repayments even after the equipment has gone beyond its useful life. With the exclusion of the added interest you might pay for a long term loan, there’s not much difference if you pay now or later. However, if possible, it would be smarter and more beneficial to limit long term liabilities.
Compared with traditional long term financing options, business loans commonly offer far more flexibility. A number of business lenders will allow businesses to make repayments on the periods when they are generating revenues.
Allow for your business’s circumstances, such as you capacity to pay or the reason for the loan, to determine the financing option you will choose. Ensure your success by making an effort to do research on the options available with various lenders and in the end choose the loan that is right for you.
If you would like to seek professional advice about loans for your business, or if you have any enquiries about our portfolio of chartered accounting and business services, please contact PJS Accountants.