Whether you are starting out or your business has been established for many years, maintaining appropriate cash flow is a critical success factor.
Here are some home truths when seeking business finance that once accepted will allow you to better understand and preserve your cash for the time you need it most.
Rates are less important
Think of rate as a function of features and term against your security. If you select the wrong term or features the cheap loan might cost substantially more. More generic assets like cars clearly are closer to home loan rates; but failure to appropriately match terms and features will end up in a nasty surprise towards the end of the loan. Speak with people who will educate you about your security position, and outline not just the cheapest rate, but options appropriate and specific to your business.
Convenience = cost (most of the time)
If you are being offered an additional feature or benefit that seems too good – its because it is. Compare options, be careful in rushing a finance decision offered by a dealer/vendor and discuss with your accountant or team internally the capital expenditure forecast and needs beforehand.
Security is no longer just bricks and mortar
Unencumbered Equipment, Invoices, Debtors, Cash Flow; every lender has a different aspect to a transaction to give the comfort. The key is bothering to make those additional enquiries or utilising an experienced broker with a wider range of options to do this for you and outline alternatives
If an asset is utilised for the purpose of increasing income- by rights, it should be able to be financed
There are plenty of examples of assets that traditionally are harder to finance – fitouts, software and licensing costs, specialised overseas equipment, older assets – they can all easily be financed when you deal with a financier or broker with appropriate options. The lower the resale value generally the higher the rate and shorter the term. Don’t accept a no – ask why and how.
Your exposure with each lender is critical
If you have over $1M of business lending you likely are being required to provide additional reporting, and may require particular financial ratios or covenants to be met pending on your industry.
There will come a time where you may have to move all exposures with a single lender, however, successfully navigating across different lenders policies may minimise the need for updated financials or additional reports.
Understanding these home truths before seeking finance, and engaging expert advice in sourcing the right options will give your business every chance for success regardless of its stage in the business life cycle.
About the author
Chris Slack, Head of GCC Business Finance