The Importance Of Having The Right Lending Structure

When it comes to business finance, having the right structure for your loans is important. The structure can impact your cashflow, your equity position and possibly your tax. The structure should be aligned to your goals and plans for the future. Working with an expert, who understands your business and your business requirements, will help ensure you are receiving the right advice for your situation.

Choosing the right product for you and your business is critical, there are lots of ways of getting money, but making sure it matches the purpose is vital. The consequences of choosing the wrong finance product can include paying too much for finance, or ending up with a loan that doesn’t match the purpose.

We’ve put together 5 things to consider when choosing business finance.

What is the money for?

This is the first question any Broker or Banker will ask, to help begin to determine what product may suit your business. The finance needs of someone buying a commercial property will be different to someone buying a piece of equipment. Cashflow is a very broad answer. It is important to ensure the funds are providing a solution for your business to help with growth, not plug a hole that will inevitably see you require more money in 6 months.

Some businesses in need of short-term finance options, may not be invoicing or collecting their debts properly. Understanding your cashflow position is important in deciding the best structure.

How will the repayments impact the business?

Some alternative lenders will offer business customers ‘unsecured’ finance. The repayments can sometimes be large, as the debt must be repaid over a short term. This can suit some businesses, who are expecting funds, but can put pressure on other businesses, who borrow to plug a gap in their business. It is vital the repayments are factored into your cashflow and are reasonable for the business to repay.

It is important to decide whether you wish to pay principal and interest or interest only repayments too. Your Accountant will be able to provide advice in line with your taxation strategy and a Financial Planner can assist in providing advice for your future plans. Depending on your strategy, will depend on what repayment option will suit you best.

What is the loan term?

The loan term should match the purpose of the funds and ensure the repayments are achievable for the business. The term should be reasonable and in line with what is happening in the business ie; if you are buying a vehicle for your business, a 3 – 5 year loan term makes sense. It matches the lifespan of the vehicle and potentially when the business would look to upgrade.

Putting a long-term debt on a cashflow product that is assessed on a yearly basis, may have negative consequences on your business if the bank lowers the debt. An expert should work with you to find the right solution.

What are the conditions?

Depending on your request and/or loan size, the bank may impose specific conditions when lending money. They can also impose conditions that must be met annually. It is important to understand what these are, how they impact your business and whether it is achievable. Having an expert working with you may help in negotiating with the banks and helping you understand the implications. When accepting a loan contract, it is important you know the conditions will not negatively impact your business and can be achieved without pressure. The bank can consider it a breach if these are not met.

Speak to the experts

Finally, make sure you talk to someone experienced. Working with a team of experts, can help you in making the right decision in all aspects of your business. Each financial expert offers advice in different areas of your business, so allowing them to work together towards your goals, can help when deciding on the best structure for you. Reviewing the structure annually is also important, what’s working now, may not suit your needs in 12 months-time.

Credit Representative 490860 is authorised under Australian Credit Licence 389328

This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.

Leave a Reply

Your email address will not be published.