Managing Your Business Loan
Used well, business finance can help you build a bigger operation faster, multiplying your profits. But it’s important to choose the right tool for the job, then manage your loan carefully.
Whether you’re buying a business, expanding or simply looking for working capital when sales are slow, you’re likely to need a cash injection at some point in the life of your business. Unless you have an investor in the wings, then you need a business loan.
A loan can potentially multiply your profits by helping you buy or lease bigger premises, hire more staff, buy more supplies and build a bigger operation faster. But it needs to be managed carefully if you’re going to reap the full benefit while keeping costs under control. That means doing your homework before you borrow.
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Step 1. Analyse your needs
As always, it all starts with your business plan. Create detailed profit and loss and cash flow forecasts so you can calculate exactly how much extra capital you’ll require and how long you’ll need to pay it back.
If you’re borrowing for an existing business, it’s also a good idea to analyse your month to month cash flow over the last few years, so that you can identify any seasonal variations. That way, you can put in place a safety net, such as an overdraft, ahead of time, and shape your repayments to match your resources.
Step 2. Choose the right tool for the job
Not every business loan is the same, so it’s important to choose the right tool for each job. Generally speaking, short-term cash flow solutions give you more flexibility, but at a higher cost.
Step 3. Arrange finance
To apply for a loan, you’ll generally need two years business financials and tax returns (for an existing business), a strong business plan and financial projections (for a new business) will add value. Your lender is looking for evidence that you’ll be able to pay off your loan, so the more detail you can provide, the better.
If you’re applying for a business line of credit, business loan or overdraft, you’ll also need security, usually in the form residential or commercial property. The type and quality of the security can lower the risk to the lender, and impact on your interest rate.
How to use business lending more effectively
- Avoid buying long-term assets out of short-term cash flow, or you could starve your business of the cash it needs to keep running from day to day.
- Match the life of each loan to the asset it funds, so that you can pay it off from the extra revenue that asset produces. Don’t be tempted to reduce your repayments by opting for a longer term, or you could find yourself still paying for an asset long after its useful life is over.
- If you’re upgrading your equipment, consider Asset Finance. It helps you customise your repayments to match your cash flow — and it can be very tax effective.
Talk to us
Our experienced Relationship Managers can help you choose the right finance solution for your business. Here are some of the ways IMB is different:
- You’ll receive personalised service from a team who are part of the community where you live and work, not a faceless call centre. Our Business Banking specialists have decades of experience helping businesses just like yours through good times and bad.
- We offer a full range of business solutions — from EFTPOS and overdrafts to leases and debtor finance — all at very competitive rates.
We’re also one of the few commercial lenders to offer 25 year loan terms, so you can manage your repayments to suit your business cash flow.
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The information presented is of a general nature and is not intended to be relied upon as a substitute for financial advice. Lending criteria, terms and conditions, fees and charges apply.