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Author Archives: Graeme Bray

Applying For Unsecured Business Startup Loan

What is an unsecured business startup loan?

Some people start up a business even if they don’t have sufficient funding available for the continuous operation of the business. Part of their feasibility study or business plan could be acquiring startup loan to support the funding needs of the business. This shouldn’t be much of a problem because most banks and financing firms in Australia do provide this service to startup companies, especially if they find the business to be a good market niche that guarantees a stable revenue stream for the business owner.

Related article: Are You Ready To Start Your Business?

Often, business entrepreneurs applying for a business startup loan will be required to provide a form of security against the loan. This is a secured business startup loan where the lending party will accept anything of equivalent value or more to the loan amount as collateral for the borrowed money.   

What happens if you are not able to provide any collateral or security for the business startup loan being applied for? Are you denied the opportunity to access to funds that can help grow your business?

Fortunately, there is another type of loan called unsecured business startup loan. This type of loan is approved or granted even without providing any collateral or security. In a business sense, this type of loan may be considered a cash advance against future income of the company. Without collateral, an unsecured loan poses a higher risk to the lending company and as such, a higher interest rate is imposed to compensate for the higher risk.

The loan is secured by the loan applicant’s signature and commitment to pay. This type of loan is preferred more by business owners as they are not pledging additional assets towards the loan. Unsecured loans are approved faster than other types of loan, especially if all the required documentation is in order.

To apply for an unsecured business startup loan, a typical process is described below:

  • Consultation With a Financial Expert. Get all necessary information from a financial expert from the bank, lending firm or government agency
  • Application Process Begins. Documents to be filled out and submitted
  • Verification of Credentials. Lender will check and verify your background, credit status and history
  • Approval and Signing. Loan is approved and loan contracts are signed. Funds are released soon after

As soon as the loan proceeds are released, the business owner can freely use the funds according to what was agreed upon with the bank or lender.  This is to make sure that the use of funds will in turn result to generating revenue that will be used to pay out the loan obligations.

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The Good And Bad In Business Loan Application With Bad Credit History

Banks and lending firms in Australia are concerned about your credit history for two reasons.

The first reason is for them (banks and lenders) to know that not only have you fulfilled your payment obligations from your previous debts, but did so in a timely manner. They want to make sure that financially, you are in a good position and have no reason that will hinder your ability to make timely payments. Lenders also check your records for any late payments or if you have defaulted on some debts or services which earned you a bad credit rating on your credit file or history.

The second reason is for the banks and lending firms to see if you have any other existing debts. This helps them understand on how much debt you are committed on a regular basis, and if you have enough resources to repay all the debts.

Lenders are always watchful of your creditworthiness. So if you’re applying for a business loan, this is one of the main considerations that they are taking into account when reviewing your loan application.

The Good

When applying for business loan, lenders will check your credit rating. This is requested from any of the credit report providers in Australia, two of which are Veda Advantage and Dun and Bradstreet. Banks and lenders contact any or both of these two firms to get your credit report.

Depending on the report, lenders will approve or reject your application for business loan.

Related article: The Truth About Small Business Loan Rejection

If rejected, you might be informed of the reason why your application has been disapproved. This gives you the opportunity to check your credit report and repair it accordingly if the report generated has no mistakes. As some Aussies are not aware or conscious of their credit performance in the past, a business loan application that generates the credit report allows you to review your credit history and make the necessary repair, accordingly.

Through a bad credit loan – a financial instrument designed for those with bad credit rating but have bank account, a regular income and business revenue, you will be able to repair and improve your bad credit report.

The Bad

Information contained in your credit report lasts for about 5 to 7 years. This means that if you have a bad credit history, unless you have made the necessary ways to correct and fix your credit report by clearing your old debts, cancelling maxed-out credit cards, consolidating debt payments, etc., the information about your debt payment delinquency will stay on your records for a minimum of five years and up to 7 years.

The impact of this is that lenders will have second thoughts about granting approval to your business loan application if they don’t see that you have made efforts in updating your credit history and removing the bad credit performance from your record. Or, if lenders consider approval for your business loan, they are likely to impose higher interest rates and shorter loan terms in order to reduce their risk for lending you the money. Additionally, lenders are inclined to limit the amount they will lend you or require collateral or any form of security against the business loan you applied for.

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The Difference of Private Lending Firm From Banking Institutions

The Australian finance market has three main types of financial institutions, namely: Authorised Deposit-taking Institutions (ADIs), and Non-ADI Financial Institutions, Insurers and Funds Managers. Under ADIs are banks, building societies and credit unions. On the other hand, non-ADI financial institutions are money market corporations (merchant banks), finance companies (including general financiers and pastoral finance companies), and Securitisers. The last type, Insurers and Funds Managers, consist of life insurance companies, general insurance companies, and superannuation and approved deposit funds.

Private Lending Firms

Private lending firms fall under finance companies under Non-ADIs. Their main function is to provide loans to households and small / medium scale businesses and they raise their funds from wholesale markets and from retail investors, using debentures and unsecured notes.

Banking Institutions

Banks or banking institutions are classified under ADIs. Their main function is to provide a wide array of financial services to all sectors of the economy including funds management and insurance services. Foreign banks are also classified under ADIs but their authorisation to conduct business as branches in Australia requires them to only accept deposits from wholesale markets.

Difference in Functions and Operations

While both banks and private lending firms provide certain similar services, their main difference lies in how they operate and raise their funds. See comparative analysis below:

Banking Institutions

  • These firms accept deposits from private individuals and business entities.
  • They deal with customers directly
  • They take part in all activities concerning finance
  • They deal with international and internal customers

Private Lending Firms

  • These firms don’t accept deposits from anyone
  • They deal with banks and the government
  • They are concerned with the loan needs of private individuals and small/medium scale businesses
  • They may be interested with finances of foreign companies for investment purposes

Additionally, private lending firms are business entities that do not accept deposits or handle accounts like traditional banks but they provide specific type of service usually limited to providing loans.

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Benefits of Small Business Loan - Bizcash Australia
Benefits of Small Business Loan

It’s not uncommon for many small business entrepreneurs in Australia to reach a point in their start-up operations when they need to look for external source of funding to keep the business afloat. In fact, business entrepreneurs from other countries face the same challenge in the course of operating their businesses. It has become a necessary part of running a business – applying for a small business loan.

Essentially, business entrepreneurs in Australia take out small business loans to serve either of the two purposes:

  • To provide additional funding for the operational expenses of the business, or
  • To add to existing resources for expansion or business growth

External financial support systems, provided by the numerous banks and private lending firms throughout Australia help small business start-ups to sustain their overhead expenses while the business tries to pick up its revenue-generating activities. Through a small business loan, many small businesses managed to rise above the trying financial crisis recently.

How Small Business Loans May Be Used

This loan facility helps a lot of Australian business owners in getting their ventures off the ground in many ways. Small business loans may be used:

  • As additional funding for buying equipment essential to the business
  • To renovate the business brick-and-mortar shop
  • As additional funding to infuse to the capitalisation requirements of the business
  • As additional funding to expand the business operations

Even as your business has started generating income, a small business loan will help finance the other requirements of the business operations without touching the cash flow, part of which is allocated to certain financial obligations or needs that must be met. By addressing the other needs of the business, such as additional manpower, equipment, advertising campaigns, etc., business entrepreneurs are able to make their business competitive.

Tax Benefits Derived From Small Business Loans

No doubt, small business loans are important to enterprising Australians whose capitalisation and financial resources may be limited. But aside from fulfilling the need for additional funds, small business loans can also translate to tax benefits.

Most expenses incurred in operating your business can be claimed as deductions that will reduce your assessable or taxable income. Specific rules apply to specific deductible items. In general, if your business loans are used to pay for the following expenses, they may be used as claims for tax deductions:

  • Recurring expenses including bank fees and charges, bookkeeping, accounting or BAS preparation, council rates and fees, advertising/marketing, cost of cars, trucks or other vehicles used for the business, fuel/gas, franchise fees, or royalties, interests on business loans or overdrafts, electricity, office expenses, stationery, phone, communications and business-related travel.
  • Premises or assets bought or used, including computers and related hardware, computer software, depreciation of plant and equipment, cars or trucks, loan interests, lease fees, insurances, rent or lease of business premises, service and repairs to plant and equipment.

In order to take advantage of this benefit, it’s important that you keep records of your business transactions, expense receipts for a period of five years after they are prepared, obtained or completed. Without the transaction records, claims for tax deductions may not be approved.

Magnified Earnings

Aside from the tax benefits, your small business loan may magnify your business gains or earnings since the money you used to spend for your business came not from your own pocket but from an external source. This will be reflected on your balance sheet as additional asset. From the bank’s point of view, a balance sheet like this can be used to get extra financial funding other than small business loans.

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How Short-Term Business Loans Work

Anyone who has the desire to shape a better future for themself and their family will definitely come to a point of thinking to start their own small business. And a lot of people find it as the most exciting and rewarding experiences one could ever have in their lifetime. The idea of operating and running your own business may bring similar joy and sense of accomplishment as when one has a first born. In many ways the business becomes another “baby” for the family to nurture and take good care of.

Many business entrepreneurs take on the task of starting a business armed with a well-studied and analyzed business plan. And somewhere in that business plan is a provision that requires the business owner to access affordable and flexible business loans to fuel the needs of the business especially during the first couple of years. During this period, the business is likely to encounter challenges and difficulties. And if it were to survive and thrive, there should be enough cash available to support the cash flow and other operational expenses of the business.

This is where short-term business loans prove to be helpful to many business entrepreneurs. This type of loan is designed to help business owners throughout Australia that has a requirement for cash for a variety of reasons. Short-term business loans are offered in Australia for any of the following organizational concerns:

  • Purchase of Capital equipment or additional stock/inventory
  • Liquidity losses
  • Insolvency
  • Consolidating business debts
  • Creditor demands for payment
  • Tax debt payments
  • Salary payments
  • Funding for expansion plans

For this particular type of loan, many business entrepreneurs depend more on non-bank lending firms than on banks. The reason for this is the banks’ meticulous and innumerable requirements and paper works. Banks usually require a credit history or rating and a real estate or physical asset as collateral or security for the loan, if approved. Non-bank lending firms, on the other hand, have a more flexible and straightforward application process along with a flexible and workable loan repayment scheme.

Most non-bank lending firms offer short term business loans under the following terms, which may vary according to the loan amount and final implementation after the loan has been approved.

  • Minimum of 1 to maximum of 24 months repayment terms
  • Quick processing that typically takes from 24 to 72 hours after filing of application
  • Low interest rates

Approval of short term business loans is generally faster than other types of loans primarily because of the minimum risk exposure by the lender. And because lending firms recognize and acknowledge the hard work put in by business entrepreneurs in running and eventually growing their business, business owners are provided with the opportunity and access to cash on a short term basis which can be used to support the business undertaking.

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Do Not Use Your Credit Card In Growing Your Business - Bizcash Australia
Do Not Use Your Credit Card In Growing Your Business

When cash flow becomes tight, many business owners tend to utilise credit cards. Whether to ensure that operational costs like telephone, electricity and water bills are covered or to provide additional funds to the diminishing cash of the business, relying on credit cards may offer more cons than pros.

What Causes the Cash On Hand to Diminish?

In many cases, business owners make use of credit cards to support the business because there is no enough money coming in and the business cannot continue to operate without shelling out some. So where are the business’ funds? Is the business not profitable? It probably is, but the problem is that all its money is with its debtors who are running late most of the time for payments. The invoices are piling and so are the orders. In order to ensure that orders are delivered, suppliers are prioritised until none is left to cover the operation cost.

Why Credit Card Must Not Be Used?

What business owners tend to forget is that credit cards are debt. Utilising such facility means the business has to plan repayments. Credit card may provide easy funding but it can be more costly too. If you make use of credit cards without planning how you will regularly repay it, you are opening yourself and the business to high interest rates and even late payment charges. These additional payments could cripple your cash flow even more.
Another aspect business owners should consider when using credit card to fund the business is that, this is a limited resource. When you have reached your maximum credit line, your alternative source of funds goes with it. And yet, repayments still have to be made.

What Else Could Fund Your Business?

Instead of borrowing money from your credit card, you can go with invoice factoring. With factoring, a percentage of your outstanding invoices are given to you as working capital, usually up to 80% of your turnover. It is like a credit line that is directly tied to your sales.

When your invoices pile, the amount of funding you can access also grows, without relying on fixed assets or your ability to make repayments. When your debtors have paid, the remaining amount from the invoices is given to you. This scheme allows you to have access to additional funds without additional burden, giving you more opportunity to think how to grow the business.

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How To Qualify For Asset Based Loan - Bizcash Australia
How To Qualify For Asset Based Loan

Asset-based loans are usually short-term, usually lasting up to 12 months. They are called revolving credit facilities which means, a lender and a borrower agrees on a maximum lending limit based on the borrower’s assets.

Helpful Article: Tapping Into Revolving Credit

An asset-based loan uses a business’ assets or the director’s personal assets as security against the loan.  Assets vary from business to business and may include items such as:

  • Equipment
  • Real Estate
  • Materials
  • Inventory
  • Accounts Receivable

Asset-based loans are easier to secure than traditional bank loans, however, like in any other loan type, potential borrowers need to meet some general criteria.

A company must have valuable assets that can be used as collateral on a loan. Some assets have higher value and more preferred than others. For instance, accounts receivable are good security against an asset-based loan and lenders prefer them because:

  • An invoice has a clear and stated value.
  • They easily become cash once a customer pays.
  • Wait times for invoices to become cash is typically short.

The worth of a company’s assets differs greatly. There are assets whose value is easier to determine, which lender prefer. There are also those that are worth something to the business, but whose value is harder to determine by a lender. Such assets do not make great collateral. These can include:

  • Unfinished products
  • Damaged inventory
  • Past-due accounts
  • Intellectual property

Borrowers with such properties can still apply for an asset-based loan and still get an approval but the value of the loan will be less and the terms will be different as well.

Asset-based loan is a great avenue to get faster working capital and will work for many types of business, regardless of size. This is especially true for businesses in the retail, wholesale and manufacturing industry as it is easy to identify the worth of their products.

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Business Gains From Short-term Loan - Bizcash Australia
Business Gains from Short-term Loan

The only way to be competitive in this day and age of business is by making sure that your business is liquid and that you have enough resources to sustain your business and be aggressive enough to venture into unique and unexplored niches. If you are short of financial resources, all your plans to grow the business may be put on either a long or short hold depending on how you can achieve to find external sources for the much-needed additional funds.

Where Can You Find Additional Funding?

Banks and nonbank financial firms in Australia offer loan facilities for businesses. One such facility is the short-term business loan. This financial instrument allows business entrepreneurs to seize opportunities to grow their business.

Benefits of Short-Term Loans

Through short-term business loans, you are able to operate your business with enough freedom and added flexibility. As you are not forced to use funds from existing revenue streams to finance the expansion of your business, it stays liquid while you venture into other areas of business growth.

The fact that it’s a short-term loan means that you are paying interests on the borrowed money for a determined short period of time. This type of loan is only useful for businesses expecting to receive resources within a reasonable short time frame. An example would be a business that takes out a short-term business loan to be used in purchasing raw materials and pay wages and other operational expenses. If the business’ revenue stream is stable and sufficient to carry out the business on its own, an expansion plan can be implemented using a short-term loan. Payment for the short term loan may be derived partially from the income the expansion will generate and partially from the current revenue stream of the core business.

For many business entrepreneurs, one of the most common challenges faced in operating the business is how to keep the cash flow to sustain the business expenses. A stable cash flow equates to stability of your business. With a stable cash flow, any need for additional cash to pay for various business requirements such as:

  • Purchase equipment for business
  • Backup funds for business emergencies
  • Capitalisation for business expansion
  • Increase inventory of trade stocks and supplies
  • Funds needed to improve plant/factory or office
  • Funds to support other business expenses not covered by cash flow

With short-term business loans, repayments are usually arranged for 3 to 6 months, with an option for loan term extension. Interest rates may be negotiated for fixed interest rate or variable interest rate. Some banks and lenders offer a repayment term of interest only or capital and interest. And depending on the amount to be borrowed, collateral or a form of security may be required by the bank or the financial institution you are applying the loan with.

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Redeeming Yourself As A Business

Have you ever been caught in a situation where no supplier or vendors are willing to extend credit facilities for your business because of your past history of delinquency in paying obligations? That would be a very bad situation because the revenue that you derive from your business is what you depend on for everything else you need – business or personal.

With a bad credit rating, you find yourself in a difficult situation. How can you continue your business activity if you aren’t able to buy the supplies or products you need for your business? If your cash flow can no longer sustain paying for wages and salaries, how can you continue operating the business?

While your credit rating is often considered a reflection of your previous successes or challenges within your finances, some banks and financial institutions may see it as simply a reflection of a rough patch in your life and in your business. Your bad credit may be looming over your head like a dark cloud especially if you need to apply for a loan to support the needs of your business. Fortunately, there are options available which can help you overcome this difficulty. You may consider checking bad credit personal loans which might help you with your current financial difficulty.

Car Loans

You’re not applying for a car loan but you want to use your vehicle as equity for a loan you can apply with a bank or nonbank lending firm. Some call this type of loan as bad credit car loan wherein you offer the car as collateral against the money you want to borrow. Your collateral will somehow offset the factor of bad credit rating to gain approval for the loan applied for.

Short Term Loans

This type of loan may not require good credit rating and may have very lenient loan requirements. Primary requirement is being gainfully employed which can be proven by paystubs or salary slips. Term loans for this facility may vary but usually, these loans are to be repaid in full within a few weeks or months, depending on the amount approved.

Bad Credit Offer For Credit Card

You may also avail of bad credit offer for a credit card. There are credit card providers that offer credit for lower credit rating. You may be able to obtain a credit card designed for borrowers with bad credit history. This loan facility generally has a lower credit limit, higher interest rates and annual fees but it will provide you with a convenient repayment plan with a revolving term and allowing you to draw money from the account as and when needed.

Related: Bad Credit History: Don’t Be Afraid To Apply For A Loan

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Why You Should Consider Business Loan Over Investments

In starting up a business, there are certain things to consider. You must have a business plan to serve as your guide in operating your projected business efficiently. You need to conduct due diligence in terms of the viability of the business in relation to the location and the primary needs of your target customers.

You also need to study the product you want to market – if they are seasonal or all year round. And of course, you also need to check the competition. Can your business withstand it? Once you’ve considered these scenarios and decided to go ahead with your planned business endeavor, the next thing to think about is where the capitalisation will come from. You can refer to How To Start Preparing For A Business Loan for added resources.

Raising money for your business in Australia may not be as hard as you probably imagine. There are many ways to get the capitalisation or part of it for your business start-up. The ideal scenario is if you have savings to fund the business venture. This way, you’ll be in total control of the business operations because there is less pressure in making returns immediately since you are not paying any interest on the money you are using.

No one will blame you in case the business does not deliver the expected results.  But aside from personal funds, there are other options you can take to get capitalisation. You can tap the resources of investors to seed money on your business or use another alternative like crowdfunding. In this case, you need to be able to convince the investor through your business plan. Another option is to obtain business loans from one of the numerous microfinancing institutions in the country, if not from family or some friends.

Related: Financial System Inquiry Wants Crowdfunding Made Easier For Australians

While not all businessmen are keen on taking loans for business capitalisation, but are more in favour of getting investors, a business loan has its own advantages and benefits, including:

  1.    Personal Commitment

It is easier to deal with loan companies than investors. With loan companies, you have less personal commitment because loan companies are only interested on the viability of your business and your ability to repay the loan. Your commitment to the loan companies is shorter. However, if you take investors, you have a personal obligation to make your investors happy and satisfied. Your commitment does not end when you have repaid your borrowed amount.

  1.    Time and Payment are Fixed

When you take a loan from any Aussie lending company, you enter into an agreement in which repayments for the borrowed amount are fixed in terms of amount and date. Once the loan is settled, the income that your business will generate will be all yours. However, when you have investors, you’ll be tied to them as long as the business is running, sharing with them whatever income your business generates.

  1.    Full Ownership of the Business

If you choose to take a business loan, you’ll be the sole owner of your business. And as such, you have full control of how to operate the business. In the case of having an investor on board, you share the decision-making process related to the business operations.

Different business entrepreneurs may have different opinions on taking business loan and getting an investor to infuse the capitalisation needed by the business. But at the end of the day, what counts most is how you utilise the funds to ensure that your business income will repay them as your business slowly but surely tread the path to success.

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