Successfully obtaining short term business loans can be the difference between life and death for many businesses at a particular point in the life cycle of trading and growing. This awareness by many former bankers who could not assist clients became a driving force for the creation of digital lenders over the past five years with a multitude likely to enter the market in 2021.
Traditional lending was often based on the age of the business and whether lending was secured by security of the director’s home (bricks and mortar), so this clearly left 70-80% of many established businesses with nowhere to turn and for start-up businesses, it was worse.
When needed a short-term business loan can propel a business particularly if a good cash flow exists and a large order or increase in services needs cash until invoices are paid.
If your trading starts going up again post Covid, to the point where your business activity statement (BAS) starts requiring payment on time and your sales increase to double their past 12 months, an obvious cash squeeze can occur. The Australian Tax Office (ATO) has been very understanding over the past 12 months-but that is due to end once trading returns to an acceptable level.
Well as the name implies there are traditional term loans an example would be say a 1-5 year fixed rate loan secured by an asset, to overdraft (OD) facilities again fixed by a security. We can obtain what is effectively a credit card which is normally a business credit card at a slightly higher interest rate. Friends and family, although this can be dicey if things go bad, so not normally the first port of call for many.
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Now we come to the newer lenders, which have utilised modern technology, to allow for analysing bank statements, checking credit reporting agencies, checking registrars of assets held, and numerous other data points to quickly assess your capacity to meet future commitments when doing borrowings to support a business.
Now we come to the newer lenders, which have utilised modern technology, to allow for analysing bank statements, checking credit reporting agencies, checking registrars of assets held, and numerous other data points to quickly assess your capacity to meet future commitments when doing borrowings to support a business.
Speed mostly, if your broker has all the correct business data it can sometimes be between 24-48 hours to not only have an approval and have money made available for a transaction.
As soon as you can predict an upcoming need maybe beyond your current means, this does require a degree of crystal ball gazing, however we all know if we think we are going beyond our means by a simple check of the bank account.
And if that bank account still is in the black-then it bodes well for us as you may recall many older bankers helped develop these lending systems and nothing jaundiced a banker more than negatives in a bank account without good cause or explanations forthcoming, so really think about future needs beforehand.
A success story:
A client had developed a paint product that was 30% more effective for the industry they were servicing and could make orders if digital and other marketing met the eyes of their customers when purchase decisions were made.
The cost of this was some $30,000 more than they had allowed. A facility was made available even when this was a new part of the business so effectively a start-up. What was the outcome? A fourfold increase in business within three months with a further doubling of the numbers over the following six months. None of this would have happened had a facility not been made available quickly as the discounted costs were a special due to end and therefore the digital offering worked extremely well.