Boost your business cashflow with these finance tips.
As a small business owner, managing cash flow can be a significant challenge. To address this issue, there are several options available to improve the cash flow of your business.
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These include:
Overdrafts - traditional but declining
The traditional way for a business to improve their cash flow was to run an overdraft. However, with more flexible business finance products emerging, overdrafts are becoming a less popular way to address cash flow issues. You're charged a fee to get an overdraft and ongoing fees to maintain the facility. Also, interest rates on overdraft facilities tend to be higher than for residential home loans.
Credit cards - expensive money
Credit cards are easy to get, easy to use, and can be a good way to finance and monitor employee business expenses. However, they are generally not the most economical way to deal with cash flow problems. The interest rates on credit cards tend to be higher than for residential home loans, and you can quickly get in over your head. There are other specialized ways to improve your cash flow.
Factoring, debtor finance, or invoice discounting
With factoring (also known as debtor finance, invoice factoring, invoice discounting, or invoice finance), a lender gives you a percentage of the invoice (usually 80%) in cash, then the remainder when the invoice is paid. This service incurs a charge but can save your bacon in cash flow terms. Beware that if the debtor ultimately does not pay the invoice, you must repay the lender all the money you've been advanced.
Trade finance, stock finance, export & import finance
With trade finance (also known as stock finance, inventory finance, export finance, or import finance), the lender gives you a percentage of the money against the stock you've purchased. Again, you pay for the service, but it can make all the difference in cash flow terms. Lenders are much less inclined to loan money for stock sitting in the warehouse than they are for confirmed orders. If you've bought stock, it can be some time before the finished goods are sold, and this can have serious cash flow implications - particularly for importers and exporters.
Car leasing & equipment leasing
For many small businesses, leasing cars, computers, and equipment is preferable to outright purchase because it improves your cash flow.
Ready to take control of your business' cash flow? Let Alecto Finance show you how - get in touch with our team today!
Want to learn more? Talk to our brokers today!
Business Loans: A FAQ for Start-ups and Small Businesses
How to get a business loan?
Do your research: Before you apply for any loan, it's important to do your research and compare interest rates and terms from different lenders. You can use online resources like RateCity or Finder to compare lenders and find the best deal.
Have a strong credit score: Lenders will look at your credit score when they consider your application for a business loan. A good credit score will show that you are a reliable borrower and that you are likely to repay the loan.
Be prepared to provide financial documentation: Lenders will want to see financial documentation when you apply for a business loan. This will help them to assess your ability to repay the loan. Be prepared to provide things like your business tax returns, profit and loss statements, and bank statements.
Have a clear plan for how you will use the loan: Lenders want to know that you have a clear plan for how you will use the loan. They want to make sure that you are not just using it to cover personal expenses. Be prepared to explain how the loan will help you to grow your business.
Consider working with a finance broker: A finance broker can help you find the right business loan for your needs and negotiate with lenders on your behalf. This can save you time and hassle and help you get the best possible interest rate and terms.
How do business loans work?
Business loans are a type of loan that is specifically designed for businesses. They can be used to finance a variety of business expenses, such as purchasing equipment, expanding operations, or covering working capital needs.
Business loans typically have higher interest rates than personal loans, but they may offer longer repayment terms. The terms of a business loan will vary depending on the lender and the borrower's creditworthiness.
How to apply for a business loan?
To apply for a business loan, you will need to provide the lender with certain information, such as your business's financial statements, your personal credit report, and your business plan. You may also need to provide collateral, such as a business asset or personal property.
The lender will then review your application and decide whether to approve your loan. If your loan is approved, you will be required to sign a promissory note, which is a legal document that outlines the terms of your loan.
Can I get a business loan?
Whether or not you can get a business loan will depend on a number of factors, including your business's financial health, your personal credit score, and the lender's requirements.
If you are unsure whether or not you qualify for a business loan, you can speak to our finance brokers. We will be able to assess your situation and give you an idea of your chances of approval.
How much deposit do I need for a business loan?
The amount of deposit you need for a business loan will vary depending on the lender and the type of loan you are applying for. Some lenders may require no deposit, while others may require a deposit of 20% or more.
If you are able to make a larger deposit, you may be able to get a lower interest rate on your loan.
How much credit do I need for a business loan?
The minimum credit score required for a business loan in Australia will vary depending on the lender and the type of loan you are applying for. However, most lenders will require a credit score of at least 600 for a standard business loan. If you have a credit score below 600, you may still be able to get a business loan, but you may have to pay a higher interest rate or provide collateral.
What do you need for a business loan in Australia?
The requirements for a business loan in Australia will vary depending on the lender and the type of loan you are applying for. However, there are some general requirements that you will need to meet in order to be approved for a business loan.
A business plan: A business plan is a document that outlines your business goals, strategies, and financial projections. Lenders will want to see a business plan in order to assess your business's viability and potential for success.
Financial statements: Lenders will want to see your business's financial statements, such as your income statement, balance sheet, and cash flow statement. These statements will help lenders to assess your business's financial health and track record.
Personal credit report: Lenders will also want to see your personal credit report. This report will show your credit history and any outstanding debts.
Collateral: Lenders may require you to provide collateral for your loan. Collateral is an asset that you can pledge to the lender in case you default on your loan.
Good credit score: A good credit score will help you to get approved for a business loan and to get a lower interest rate.
