Business loans in Australia are significant, short term or long-term obligations that come with a minimal obligation for personal paperwork and easy lending terms for business owners that only need a sensible amount of extra cash flow money for a limited period.
Typically, when business owners request long-term business finance, they are usually intended to cover business expansion requirements, buying out a competitor or for another significant need where business cashflow would be better suited to paying these loans off over a longer term period allowing business owners to manage their finance commitments better.
Short-term business loans are fitting for businesses that have some urgent expenses currently or ones that are upcoming over the next few months.
The mainstream shorter loan period is repayable over a 3 to 6 month period to manage seasonal periods in business where cashflow is very inconsistent.
How to access a short-term business loan.
Short-term business loans are available to all Australian businesses in any industry that is registered as a limited company, sole traders, or as an incorporated partnership.
As a rule, most business lenders will want to see at least a minimum of 6 months trading history for all new and established businesses.
While a short-term business loan is frequently unsecured, being a homeowner is more often than not a really plus when assessing an application. Importantly, the debt obligations of the business must be controllable at their current levels – preferably with a good deal of breathing space to afford the additional repayments of a short-term business loan.
Business owners shouldn’t have any outstanding creditors from a previous business either or large ATO debts that a short term business loan will not be enough to payout.
Free information here https://www.businessloanscentre.com.au/short-term-business-finance/ for a guide on the application specifics for small business owners looking for short-term funding.
How to best use a short-term business loan.
For business owners improving their monthly cash flow and managing it is a very demanding proposition. Unfortunately, there are times when bookkeepers or accountants make a mistake or overlook some important upcoming expenses, which results in an unexpected working capital shortfall that still needs to be found.
For some established businesses, it’s a situation that they usually can be trade through using future profits to cover the shortfall, but in the meantime, the business faces the prospect of running a very slim monthly balance until they can recover.
To ensure they can keep trading profitably without a continually cash squeeze, a short-term business loan is a useful, controlled way to deal with the concern rather than using an expensive bank overdraft facility that often seems to work against you on the long term; the more you use it, the deeper you will get into debt.
Business owners in the retail & hospitality industries can vouch for this; lower than expected seasonal sales season can cause a problem with balancing the books through the worst periods of the year.
With a business that is displaying positive signs of sales growth the rest of the year but is suffering through their usual seasonal downturn spell, a short-term business finance facility makes perfect sense to survive the slow period and use the future upcoming profits to pay off the business loan a few months’ soon after.
When businesses are increasing their staff or having to move to larger facilities to handle a rapid growth in business where the cash flow drags behind the gross sales is another area where a long-term business lending facility won’t make much of an advantage however, a 6 to 12 month unsecured business finance facility does.
Having the benefits of enough staff on-hand improves optimism while the business is under strain from the events of a rapid business operation expansion.
How much can a business borrow?
The maximum loan amount that can be approved for will depend on the lender’s policies and their specific loan approval criteria.
A business that’s only been operating for less than a year with limited monthly cashflow or profitability will not be considered for a large unsecured business loan as much as a more established business with a higher monthly turnover and profitability every year.
Short-term small business loans fall between the $5,000 and $500,000 range (depending on business size and monthly income) which keeps the repayments reasonable and the total interest costs repayable much more affordable.
When not to apply for a short-term business loan.
Seeking to apply for a short-term loan for a business that’s weakening would not be a wise choice.
Firstly, lenders will look at your monthly figures and more than likely decline your application resulting in an unnecessary credit enquiry and impacting your credit score.
There is also no telling whether the sales decline is going to persist when it’s not due to known seasonality reasons.
It is best to try and find out from your customers (especially the ones that have stopped or are not buying the product or service) to determine what is causing them to do so? An email or phone call asking for an honest opinion is a good start. Once the problem is acknowledged, work on quickly fixing it before trying to enter into a finance loan agreement.
A new small business that is regularly faced with working capital short fall won’t benefit much from a short-term loan because unless the cashflow of the business improves in the short-term, it will struggle to meet the repayment commitments of the loan in the specified time.
There should always be sensible, well-considered motives for taking out any short term business loan facility.
For that reason, borrowing wisely is the best policy to take control and grow your business with confidence.