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.
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.