Australia currently has a great economy and a low official cash rate and this encourages businesses and consumers to have confidence in the economy. If for this reason, you are considering getting a business loan, then there are some traps that you will want to avoid. Here are eight mistakes business owners sometimes make that can cause them to pay more for financing, make it difficult to get the funds exactly when you need them, and that can lock in the loan with a longer payback period than is needed.
1. Lack Of Preparation
There will be a lot of background information you will be required to supply when applying for a loan. Your Banker will want to see your cash flow projections, a detailed business plan, and your financial records before they can consider what loan you qualify for.
2. Not Getting Professional Advice
The overall cost of your business loan will be determined in large part by how you structure the small business loan with regard to the tax savings you’ll have or not have. It’s only when you get the professional advice you need that you’ll have what you need to choose the right financing for your business.
3. Getting The Wrong Terms For Your Needs
Anytime you’re getting a loan it’s important that you match its terms together with the specific purpose you’re getting the loan for. Anytime there is a mismatch between these two it reduces the amount of flexibility you have. One example would be to get longer financing on a large purchase of property and use it for some short-term needs such as cushioning seasonal fluctuations.
4. Going To The Wrong Lender
It’s easy to waste time by going to the wrong lender and then being rejected, which in some cases can even have a negative effect on your credit rating. Some lenders simply may not understand your type of business and this means you need to find one that does and that is comfortable with making a loan for your type of company.
5. Choosing The Wrong Type Of Finance
For most loans, there are a variety of choices in the types that are available and these include your typical secured loans to highly specialised financing for specific industries. Each of these choices has their pros and cons and that makes it necessary for you to take the time to shop around and find which one is the most suitable for your specific purposes.
6. Failing To Understand The Use Of Collateral
Lending institutions are in the business of profiting from loans and the cost to you is dependent on the amount of risk the lender is taking. Very often a lending institution will reduce cost when you secure the loan with appropriate collateral. This is true whether you’re dealing with a traditional bank or an alternative lender. You also want to compare the loans using personal residential security versus company commercial security. There are some serious considerations whenever using your home as security for a business loan.
7. Underestimating Total Cost
Anytime you secure a loan it will come with a cost that includes set up and discharge fees and administration fees. You will want to understand exactly what your total costs are because they are typically added to the total of your loan balance and you’ll be paying interest on those charges as well. Small businesses are very important to Australia’s economy and to keep them running requires specialised support from those institutions.
8. Over Paying
If you take your time and do the necessary homework you will be able to achieve a suitable outcome. The little bit of extra time can often make the difference between a loan that has flexibility and lower cost and one that is inflexible and comes at a steep price. Small business owners are operating at a good time in Australia and when they take the time to get the right loan it can help them improve and grow.