One of the biggest challenges for any business is financing. Small business owners routinely run into problems when seeking cash injections from venture capitalists, banks, or financial institutions. It’s an insuperable challenge that is laden with many obstacles along the way.
In the land down under, there are many challenges faced by business owners. For starters, the global recession of 2009 made it difficult for SMEs to acquire the necessary financing from banks due to increased regulatory requirements. In response to this ongoing problem of securing financing from banks, entrepreneurs are seeking out alternative methods for business loans.
The Rise of Small Business Loans: An Elixir to the Problem
The first order of business for companies in Australia is to determine how much money is needed, over what timeframe. Loan providers require borrowers to have an ABN. An ABN is an Australian Business Number issued by the government. This 11-digit code identifies the business to the community and the government. It is separate from a tax number, but it is required for many business purposes such as securing financing.
SME loan calculators are a good place to start. Clients will be required to enter the length of time they been in business, how much money they would like to borrow, and what their monthly turnover is. Various subjective analyses like the ‘current state’ of the business can also be factored into the equation.
The next order of business is determining where to apply for the small business loan. Multiple lenders offer lines of credit to SMEs, including prospa, Capify, Sail, and Spotcap. In most cases, businesses are required to have a minimum annual turnover. This varies from $120,000 – $200,000. Additionally, clients will need to show that they have been in business for at least 6 months. Depending on the lender that is selected, funding in the region of $5,000 – $400,000 is available, with minimal paperwork on the client’s part. Companies like Capify rank highly with clients in Australia.
A good place to start when evaluating all your options is SmallBusinessLoansAustralia’s guide. It provides details of the best lenders in the industry, their terms of service, and what they are prepared to offer clients. It is essential to conduct the necessary legwork on your own, or through an aggregator platform that has already done this for you.
Comparing different business loans is a lot more complicated than meets the eye. For starters, the following factors need to be assessed:
- Flexibility with regards to loan options
- Response times, repayment schedules, and financing
- Reliability, reputation, and transactions processing speed
- Variety of services offered to small, medium and large enterprises
Banks May Be Cheaper, but They Take Longer and You May Not Qualify
In addition, business owners need to be sure that they can repay the loans in a timely fashion. Businesses can sink or swim depending on how well they manage their finances, including their cash flow. A big part of this issue is the ability to repay lines of credit. Unfortunately, business-related money issues often become major bugbears in a personal capacity as well. It’s imperative that entrepreneurs only borrow funds that they need for business operations.
If possible, it is best to forecast business needs ahead of time since the cost of financing is directly related to how urgently it is needed. Banks are the lengthy route to take, with mounds of paperwork and long processing times. Non-bank lenders offer a shortcut with easier qualifying criteria, but the rates may be higher.
Essentially, businesses are paying for the privilege of easier money. The pros and cons of all these elements must be factored in to the equation when making these types of decisions.