Business and Commercial Loans

Finance to meet your commercial needs

Commercial Loans

 

Businesses often require commercial loans to expand and develop. While commercial loans are highly beneficial for these endeavours, many business owners fail to capitalize on the commercial loan choices available to them, or do not choose the right loan based on the circumstances.

 

To avoid these problems, it is crucial that you know what options are available, and which options are best suited for your business and for your requirements. This guide gives you a brief overview of the main types of commercial loans in Australia to help you get in the know, covering all the important facts and benefits.

 

Term Loans

 

A term loan is a standard financial credit line that provides you with funds that can be used for business purposes, including business purchase and acquisition, business expansion, real estate purchases, and other forms of capital.

 

Term loans come in many different forms and are highly flexible, depending on the nature of your business and your requirements. Interest rates for term loans can be fixed or variable. Fixed rates provide stability, allow you to see where you will stand further down the line, and give you advantages when interest rates are rising. Variable loans give you the flexibility to increase your credit, make modifications as the needs of your business change, and come with fewer restrictions on repayments. For example, with a fixed rate loan you can increase your repayments when you are able, and reduce your repayments when you need to.

 

For all terms loans, the most important factors to understand are the loan amount and loan term, the security you provide, and the number of repayment options available to you. Repayments are usually made bi-weekly or monthly, and loan terms are commonly 15-25 years.

 

Cash Flow Funding

 

Cash flow funding is a type of short term commercial lending which frees up your working capital and gives you greater purchasing power. This is great for businesses that are experiencing growth, but do not have the cash flow to capitalize and expand on top of such growth.

 

The amount you receive is not fixed, but variable depending on the value of your unpaid receivables. You are usually able to gain access to funds that are a significant percentage of your invoice value, and the funds available to you will increase as your invoice value increases, letting you get hold of more and more funding as your business grows.

 

Cashflow funding has many other advantages. It does not rely on assets such as property, you can stop having to chase debtors on your accounts, and you can re-negotiate terms with your partners to increase your profits.

 

Leasing

 

Commercial leasing is a way of funding many different business purchases such as property, vehicles, machinery and equipment. When you lease, you do not have ownership of the product in question, but this disadvantage makes way for many advantages. It puts much less strain on your capital, so your business can grow more easily and quickly, you can avoid certain taxes, and you do not have to worry about depreciation of the leased assets. It is a good choice for small businesses that need room to maneuver, and there is usually freedom at the end of a lease to either renew the contract, not renew it or purchase. Commercial leases typically last between 1 and 5 years.

 

Novated Lease

 

Similar to a standard lease, novated leases are vehicle leases, which put less responsibility on the company and more responsibility on the employee who operates the vehicle in question. With this form of leasing, a business can lease a vehicle on behalf of an employee, and the employee takes responsibility for ownership and abiding by the lease contract. The employer deals with the repayments by taking money directly from the employee’s gross income. Novated leasing is a cost-effective alternative to standard commercial vehicle financing and leasing, providing the business with a way to add employee incentive at minimal cost and reducing the risk on the employer’s behalf.

 

Hire Purchase

 

Hire purchase is a “rent” option for the lending of important business assets such as vehicles and equipment and is best suited for businesses with stretched collateral and few other credit options available.

 

In a hire purchase contract, the borrower pays to hire the assets, with the choice at the end of the contract to either purchase the assets outright or return them to the lender. Final payment may be set or negotiated. Unlike other forms of hire, however, the borrower does assume ownership of the assets during the hire period.

 

An advantage of hire purchase is that any Goods and Services Tax that you are required to pay can be claimed back at the end of the Hire Purchase contract and because ownership is with the borrower during the hire period, this increases business equity.

 

Commercial Bills

 

Commercial bills are sources of finance for larger investment purposes such as commercial property development, which allow you to raise the finance you require through bank bills. The bills can be fixed rate or variable, though there will usually be financing “rollovers” where interest (Bank Bill Rate) and borrowing will be recalculated.