What is Business Loan?
A business loan is funds borrowed from a business loan provider such as a bank or finance company, which is specifically planned for business functions that must be repaid-with interest over a period of time.
When will I need a business loan?
- Grow your business – for example, investment in marketing or purchase of Plant & Equipment for the business.
- Boost your cash flow – for example, an overdraft facility required for working capital
Cover revenue gaps – for example, the Childcare Center industry where the business receives funding three times a year.
- Pay business expenses – for example, a line of credit is required to cover business expenses until you get paid by your creditors.
- Help with payroll – for example, occasional temporary overdraft given by your bank to cover the payroll, noting that repeated such requests are not a healthy sign.
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Types of Business Loan solutions
There are various business loan solutions available depending upon your business requirement, which may include:
- Term loan for a certain period with regular repayments to fully repay the loan within the loan term, which typically may vary from one year to five years, assessed on a case-by-case basis.
- Line of credit with a pre-determined limit, up to which the business may draw funds to pay for business expenses and repay as they receive their payments from their business debtors. This is an ongoing lending facility.
- Aside from the pre-approved facilities, sometimes business lenders may agree to fund the occasional additional funding requirement on a case-by-case basis.
- Many times, some businesses also prefer to fund their long-term business assets purchase through financial lease arrangements.
- Some specialist lenders also offer credit facilities like paying you discounted value before your outstanding invoices are paid out by your business customers.
- The lender may consider your business loan requirements with collateral security, which typically could be your residential or commercial property and personal guarantees from the business operators. It is often seen that the cost of funding, in this case, is slightly lower than where the borrower business does not have collateral to offer.
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Am I eligible for Business Loan?
Lenders take a number of factors into consideration while they assess your business loan application. They undertake a detailed analysis of the industry concerned, the proposed business and the people behind the business. We discuss below a few such factors that lenders consider:
- The industry of the proposed business. This is more relevant now than ever before because of the increased mortality rate of industries in the modern-day volatile world and the ever-changing technological advancement.
- The proposed business itself, which may include its positioning against the competition, its historical and projected financial performance, potential requirement of any major capital expenditure over the short to medium term in the future, the lease terms including its final expiry, the staff profile, the working capital requirement and many other such relevant factors.
- The profile of the people running the business is of paramount importance which may include existing experience in running a business, preferably in that particular industry, their business plan and strategy, their financial standing and net worth, etc.
- Whether the lending proposal includes collateral security which adequately secures the proposed loan amount. The lenders do consider unsecured lending, but this requires even more detailed analysis, and the cost of funding would potentially be higher.
- In case of franchisee businesses, there could be specific requirements from the master franchisor – this could impact the bank’s assessment.
- Any lending including business loans remains subject to the lender’s assessment as per legislative requirements which will include detailed servicing analysis as per responsible lending guidelines.
How Much I Can Borrow?
In most situations, the business lenders will require you to contribute part of the funds and the lender assesses the application for the rest of the required funding. The amount you can borrow will vary depending on the lender, their assessment of your application, loan type, purpose, collateral, and financial situation.
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Can I Repay My Business Loan Early?
Yes, you can. Repaying ahead of schedule can save you money on the interest rate and gets you out of debt sooner. However, there may be certain fees or penalty charges for doing so depending on the lender and the specific terms of your agreement.
If you have a variable interest rate you can increase your repayment amounts, make extra lump-sum payments, and even pay off the entire loan early anytime you want, all without any cost.
If you are on a fixed rate, you can repay the loan before the fixed interest period ends, however, you may be liable for early repayment adjustment fees.
At Kiwi Mortgages, we have business specialist advisors who can help you with the preliminary assessment of your business lending proposal and help you secure a business lending at decent terms and as per your needs
You may contact us on 021030 8135 or email at email@example.com