A business banking borrowing walkthrough
Wednesday, 29 March 2017 13:12
There are many businesses all around Australia that are in growth mode. However, growth can often cause strain on cash flow, as more resources are taken up to fund expansion. If your organisation, like so many others, is in a period of growth it may be helpful to have access to suitable business finance.
Before you borrow
The first question you need to ask yourself before jumping headfirst into a business loan is - is there any other way to fund growth? Freeing up internal resources by reducing stock holdings, collecting cash from customers earlier or extending terms with suppliers, could do the trick.1
If the answer is still yes, it could be a good time to work out the details. Consider preparing a detailed cash flow forecast to determine how much you may need, how you will repay the loan, and how long the loan term might be2. From here, you could start looking at what type of finance you might need.
Considering your options
There's more than one type of finance available to your business to fund growth. The following are just a few of the options to consider:
- Debtor financing: using your unpaid invoices as security for a loan. Receive partial payment against the value of your invoices within 24 hours with the balance on full payment by the debtor
- Credit cards: you could opt to find a credit card with a high limit, however, they usually have high interest rates. It is also important to use credit cards responsibly, ensuring you don’t spend more than your business can afford.
- Business overdraft: an IMB Bank Overdraft works in conjunction with the IMB Business Transaction Account to assist you with the day to day working capital requirements of your business.
- Term loan: whether it’s for asset finance or a flexible fully drawn commercial loan, you have the option to apply and receive a lump sum and pay it off over a fixed term.
- Commercial Line of credit: can allow you flexible access to funds from the bank when you need them up to an agreed maximum amount. This option may also provide long repayment terms.
Do your research
During the early stages, doing thorough research into which bank offers competitive interest ratesand quality of service, is highly important and could save you a substantial amount of money with respect to your individual set of circumstances.
There are resources available like Canstar or Finder that compare bank rates and quality of service.3 You can also ask prospective lenders what business banking options they offer, and why certain finance products could be beneficial.
Generally, secured loans can offer lower interest rates, however, you will need provide security in case you're unable to repay the loan. This can include business assets, your home, commercial property or unpaid invoices.
If you don't want to risk property and other assets, an unsecured loan may be an option. Be mindful that these types of loans often come with higher interest rates when compared to secured loans.
Applying for a loan
When you've planned, forecasted and prepared it's time to apply for your business loan. Generally, it can be beneficial to approach lenders well before you need the funds, and have your plans, finances and forecasts prepared when you meet your lender. Be able to clearly explain your requirements, and demonstrate a positive track record when you apply4.
When it's time for you to get the ball rolling on the next stage of your business's growth, get in touch with the team here at IMB Bank.