The topic of “Business finance” may appear to be self explanatory and categorised as any finance that relates to the business. However, it is the essential definition of business finance that can be identified simply. However it is when you start working out what business finance product in the market best suits your business is when the whole topic can become confusing and overwhelming.
There are 9 key questions that are regularly asked when seeking business finance.
- What do you need finance for?
- Are you starting up a new business?
- Are you Purchasing a business?
- Or reinvesting into your existing business?
- Are you looking to solve a cash flow problem and need more working capital?
- Is there an underlying issue that is creating the cash flow problem?
- There are many ways to finance any of these requirements, understanding exactly why the funding is needed is essential to determine the best solution for your business.
- How much do you need and what will be the purpose of the required amount?
- Knowing how much you need, and the timing, and what you’ll spend it on will narrow down the qualifying loans that are available. Many business owners are reactive and usually have immediate requirement for funding which can find a business in a loan that solves the immediate need with limited consideration on the longer term effects of the business
- What timeframe are you considering to spread the repayments over?
- Many factors that need to be considered when selecting the right product for the right purpose over the best term. Each product has the flexibility to set the term depending what the facility is secured against and used for.
- For example; asset finance can be set up from 36 – 84 months and trade finance can be structured for upto 120 days.
- What associated risks are there with your industry or business?
- Knowing the risks in your industry and business is crucial and it is important to be upfront with and known issues and it is important to know how the risks are mitigated.
- What is your credit profile on even seeking an approval for a business loan?
- Understanding your current credit file is imperative. It is truly a health check on the directors/ owners and the business itself. A history of ability to repay debt assists in loan applications.
- What the cost associated with accessing a business loan?
- Every loan product has different cost structure, whether that be an interest rate, establishment fees, ongoing fees, management fees. There is a general rule that the stronger the asset offered the cheaper the cost of funds.
- What is the payback period of the investment?
- Once you have been able to determine the cost of funding, make sure it stacks up. What is the actual pay back period to recover expense vs the actual term of proposed finance.
- What security or asset is required when seeking business finance?
- Once you have established why finance is required for a business, the next is to work out the best security to offer, whether the actual asset being purchased can be secured or goods being manufactured can be used. It is also important to understand if the lender requires a personal Guarantee, PPSR requirements or even property as security.
- What product is best suited for the requirements I need for a business loan and how do I access the best business loan for your business?
- With business finance there is no one product that solves every requirement for a business. Understanding the items above will assist in helping you identify a product that is right for you and the business at this point in time.
Types of Business Loans available for business owners.
There are effectively 5 different categories that most business finance falls under being, at Fundamental Business Finance we have identified these as our five key pillars of business finance for SMEs.
- Cashflow Finance
- Commercial Finance
- Asset and Equipment Finance
- Residential Finance
- Construction and Development Finance