As you go about selecting the right small business loans, it is wise to gather as much information as you can about the range of options that are available to you. Australia boasts a wide range of lenders that cater to small businesses, all of which offer various types of loan products. As such, prospective borrowers need to familiarize themselves with extensive information in order to make the best choice for their business. Therefore, this article is a comparatively brief summary of some of the key factors to consider when seeking a small business loan.
Preferred Method Of Accessing Loan Funds
One of the most crucial factors in selecting a specific type of small business loan will be the frequency and timing of when you want to access the proceeds of your loan. Borrowers who wish to obtain the entire loan amount upfront as a way to purchase business capital or expand the enterprise should pursue a “fully drawn advance.” Businesses needing a solution for temporary cash flow concerns should seek a loan that is structured as a line of credit or as overdraft protection.
Desired Loan Terms
A loan that is disbursed on an upfront basis will be repaid in installments comprised of a percentage of principal amount together with interest. The precise amount required at each interval will be determined by the stated term or duration of the loan. When choosing a small business loan, it is therefore necessary to make honest calculations about the size of installment payments you can comfortably make. While a longer loan term will mean lower repayments, the total cost of the loan including interest will be greater.
Collateral And Security
Small business loans that are secured tend to be somewhat less expensive, but the downside is that collateral will need to be pledged in order to obtain a more favorable rate. Security for a loan of this type could be in the form of business assets, personal property or alternative types of collateral. Though a secured loan product will carry a lower rate of interest, failure to pay in a timely fashion can result in the seizure of the pledged assets. This is why many small business owners are hesitant to pledge their own residence to get a loan in Australia.
Interest Rate Structures
Small business loan products in Australia will either have a fixed interest rate or a variable rate. As the name would suggest, a fixed rate is one that does not change during the life of the loan. A variable rate fluctuates along with the broader financial market. Lenders assume the risk of market changes for fixed rate loans, but in the case of a variable rate loan, the borrower bears the risk. Variable rate borrowers may ultimately pay less in interest during their loan terms, but there is always a chance that unexpected rate interests will make repayment difficult.
Institutions offering loans to small businesses will have their own fee structures in place, and these may encompass application fees, fees for early repayment, establishment fees, maintenance fees and more. Though a particular some lenders may boast a low interest rate, it may be that their fee structure makes the loan more expensive than a product offered by a lender with a higher rate but fewer fees. The key is to make a careful calculation of the entire cost of a loan and the required monthly payments in order to avoid unpleasant surprises and hidden fees.
Certain types of lending institutions in Australia, particularly banks, will want to receive highly specific business plans from those seeking a business loan. This documentation usually includes cash flow forecasts, financial history, profit and loss statements and the like. This can be time consuming and complicated making the situation a complete turn off.
Companies like LoanOne make the documentation process simple to follow. LoanOne is one of the fastest growing financial companies in Australia and are here to make the loan application process fast and easy. We offer both personal and business loans with competitive rates to different industries. Our loans are fast, flexible and can be tailored to both your personal or business needs. Apply now by clicking here.