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SHORT-TERM HOME EQUITY LOANS: WHAT THEY ARE & WHY THEY’RE WORTH CONSIDERING

ik@ippei.com (Tori Klein) — Thu, 26 Dec 2019 14:56:38 GMT

In this article, we’ll look at short-term business loans – what they are, why you might use them, their various benefits, the loan options available, how they work, and the difference between secured and unsecured loans.

What is a short-term business loan?

As the name suggests, a short-term business loan is a loan taken out for business purposes. When we say ‘short-term,’ we generally mean for a period of time anywhere from two months to two years. Unlike longer-term loans, that are often up to 25 years and traditionally used to purchase commercial or industrial property, or investment in income-producing equipment (such as a factory fit-out), short-term loans are typically used to smooth out business cash flow gaps over a relatively short period of time. Short-term loan amounts are also comparably smaller to long-term loans, and are usually within a range of $25,000 to $500,000+.

Why you might consider a short-term loan for your business

A short-term loan can help smooth out the ups and downs of business cash flow.

Anyone who has run a business of any size understands the difficulties of managing cash flow fluctuations or dealing with cash flow gaps; or the frustration of missed opportunities simply because funds were not available to take advantage of them at the time. This can be particularly difficult for small businesses that are reliant on payments from fewer (larger) debtors, seasonal trade, or lack of ‘buffer’ funds to meet unexpected expenses.

One of the most common uses for a short-term business loan is to manage seasonal fluctuations in trade and cash flow. For example, suppose a business does a greater share of revenue in the summer months (such as a tourism operator) or at Christmas (such as a giftware retailer). In these cases, a short-term business loan can be a handy way to balance cash flow through the leaner months or to purchase stock in the lead-up to a buying period.

How can you use a short-term business loan?

There are many potential uses for a short-term business loan. Here are some common scenarios:

Purchase new stock
Purchase new equipment
Make essential repairs to business equipment
Make wage payments
Hire new staff for an upcoming busy period
Offset slow-paying customers
Pay outstanding tax bills
Fulfil a new contract
Smooth out time lags between accounts receivable and accounts payable
Start a business
Invest in an established business or buy an existing business

The benefits of a short-term loan for a small business

When cash flow is tight, or there is a crunch looming, timing is often of the essence. The key benefits of short-term loans for small businesses are that you can easily apply online , get approved and funded quickly compared to other types of loans. While lenders’ turnaround times vary, short-term business loans can typically be obtained within three to five days, and often without extensive documentation. A short-term business loan is also the perfect solution for a short-term cash flow gap where the funds are not required for more than a few months.

Where can you get a short-term business loan?

You can apply online with a variety of lenders, from the big banks to new and emerging fintechs and private lenders. The good news for businesses, especially for small businesses, is the emergence of specialist short-term lenders, who are making business lending more accessible and competitive than ever before.

What short-term loan options are there for small businesses?

Short-term business loans come in a variety of different forms. The type that is most aligned with your business will depend on your specific circumstances and requirements. Here’s a few areas to consider:

Term loan: A single lump sum to be repaid over an agreed period of time with a variable or fixed interest rate.
Business overdraft: A pre-approved facility attached to your business bank account that you can draw down from time to time as required.
Line of credit: Similar to an overdraft, but not attached to a specific bank account.
Business credit cards: For smaller amounts, these are convenient but attract a very high rate of interest if balances are not paid in full each month.
Equipment or vehicle leases: Funds for the purchase of specific equipment or vehicles, paid in monthly installments (often with a lump sum payment at the end of the lease term).
Invoice financing: Also known as debtor finance or invoice discounting, current invoices are paid to the business by the lender, less an agreed percentage fee, with the lender collecting the full invoice payment from customers.

Short-term business loan facts

Short-term business loan facts and figures depend entirely on the lender. Here’s a product overview from specialist short-term business loan provider, Mango Credit:

Loan amounts can be $25,000 to $500,000+
Loan terms from two months to two years+
Funding typically within three to five days from application
No credit check or income assessment
Minimal documentation
Security can be provided by real estate assets
Secured by caveat, second or first mortgage
Flexible underwriting

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One key factor when applying for a short-term business loan will be whether the loan is secured, or unsecured.

A secured loan requires security – typically in the form of relatively liquid assets that a lender can sell to recover the loan funds in the event of a payment default. Think property, inventory, accounts receivable, vehicles and equipment and any other type of asset the business owns (note that a loan may also be secured against the personal assets of a business owner, such as a home).

Secured loans generally take longer to approve as the security needs to be considered and valued, requiring valuations and further documentation. A couple of key benefits of a secured loan are that they commonly allow larger amounts to be borrowed and charge lower interest rates based on the lower risk.

Unsecured loans differ in a few key ways. Rather than physical assets as security, the loan may be approved on the basis of your strong business cash flows that demonstrate a robust capacity to pay down the loan and interest. Generally, they will be for smaller amounts than secured loans and they attract a higher rate of interest as they are riskier loans for lenders. But unsecured loans do offer the benefit of faster approval as they require less upfront information and documentation.

What short-term business loan is right for you?

The most aligned loan for your business will depend on entirely on your specific situation and circumstances. Questions to ask yourself and discuss with your lender include:

What the loan is for
How much you need to borrow
How long you need the funds (or how soon you can pay back the loan)
What repayment amount can you afford
What you have to offer as security
What happens if you’d like to pay out the loan early
What happens if you’re late with payment(s)

Key takeaways

If you are facing a cash flow shortfall in your business, or need funds to grow your business or make an investment, a short-term business loan can be used for a variety of purposes. You can apply online for short-term loans from a variety of lenders, with private lenders and fintechs offering a relatively simple application process, minimal documentation and fast funding.

LOANS TO HELP YOU GET DOWN TO BUSINESS

ik@ippei.com (Tori Klein) — Thu, 26 Dec 2019 14:56:38 GMT

In this article, we’ll look at short-term business loans – what they are, the benefits of using them, and common uses for quick access to funds for up to 12 months.

What is a business loan?

A short-term business loan in Australia is used for business-related purposes, such as investing in equipment, purchasing, improving cash flow, or debt consolidation. Short-term business loans can help smooth out the business’ financial ‘ups and downs’ or help you take advantage of opportunities to grow your business. Short-term small business loans are usually for $25,000 to $500,000, with a term of 3 to 12 months.

Why you might consider a short-term business loan

Short-term business loans can be used for a range of scenarios, including:

Business expansion: “It costs money to make money” is the old adage and growing a business is no different. Advertising, hiring new staff, expanding or renovating, are common costs associated with a growing business.
Inventory: Investing in inventory, including expansion and replenishment, can be tremendously beneficial to boost revenue. Though it’s often a double-edged sword as expensive purchases can hurt cash flow, especially when businesses have seasonal demand.
Cash flow: Small businesses, in particular, have to deal with cash flow fluctuations when inventory is slow to move or customers are slow to pay.
Equipment: Purchasing new equipment, or repairing/ replacing existing equipment, is often an unexpected (and hefty) expense that is required to keep the business moving.

The advantages of short-term business loans

A short-term business loan has many advantages, including:

Easy application process: Apply online for short-term business loans in Australia, with a relatively simple application process from a range of private lenders and fintechs.
Real-time access to funds: Once you meet the lending criteria and the loan is approved, funds can be accessed in as little as a few days.
Keep control: A short-term business loan ensures you retain full control with no external interference, which is often viewed as preferable to inviting investors into the business.
Temporary: Once the loan is repaid, your obligation ends. Whereas in the case of equity finance (investors), you have new shareholders for potentially a long time.
Tax-deductible interest: Payments are more manageable as the cost of funding business growth (loan interest expense) can be deducted from income generated.

Types of business loans

There is a range of short and longer-term loans available to businesses in Australia:

Term loan: Borrow a single lump sum to be repaid over an agreed period of time, with fixed or variable interest rates.
Line of credit: Access funding up to a certain amount that can be drawn down as required to help manage cash flow or pay an unexpected expense.
Business overdraft: Attached to your business bank account, an overdraft allows you to overdraw up to a pre-approved amount.
Business credit cards: Business credit cards are convenient, though it’s easy to be stung with high-interest rates if the card balance isn’t paid off in full each month.
Equipment lease: Funds provided and secured against specific business equipment (or vehicles).
Invoice financing: Invoice financing, also known as invoice discounting or debtor finance, pays the business the majority of the customer’s invoice immediately, transfers the liability of a customer’s invoice to the invoice finance firm, then takes a percentage of payment once the customer pays the invoice

Key takeaway

If you own property, a short-term business loan is increasingly being considered as a way to obtain funds relatively quickly. You can apply online for a short-term business loan through a variety of lenders in Australia – particularly through private lenders and fintechs. This form of funding can be used for a short period of time (3 to 12 months) for a variety of purposes.

ASSET RICH BUT CASH POOR? CONSIDER A SHORT-TERM LOAN

ik@ippei.com (Tori Klein) — Thu, 26 Dec 2019 14:56:38 GMT

In this article, we’ll look at short-term loans – why you might need one, the benefits of using them, and the different types of short-term lenders in Australia.

Why you might need a short-term loan

You might have heard the saying “asset rich and cash poor” which describes a situation where you have good security, but lack of access to cash. A short-term loan can be a good solution meet temporary challenges and the ups and downs of cash flow in your business or personal life. Short-term business loans usually have a term of two months to 36 months. Common loan sizes are from $25,000 to $500,000.

Why you might consider a short-term personal loan

One of the most common forms of short-term personal loans in Australia is a bridging loan . As the name suggests, a short-term bridging loan essentially ‘bridges the gap’ between the sale of the original home and the purchase of the new house. As such, a bridging loan can be a good alternative when you need to act quickly to secure a new property and the settlement dates for purchasing and selling don’t match, which is often the case.

Less commonly known is that you can use a short-term personal loan to renovate or prepare your property for sale, or even complete a small sub-division. You might also use this kind of loan to pay off personal debts, such as credit cards or a tax bill.

Why you might consider a short-term business loan

Anyone who has run a business understands that a cash flow crunch can occur for any number of reasons, no matter the size of the business. Short-term business finance provides a simple solution and fast injection of funds to alleviate a credit squeeze and let you focus on running your business.

Backed by equity in your property, short-term business finance can be used to:

Purchase new stock or equipment
Make wage payments or hire new staff
Offset slow-paying customers
Pay outstanding tax bills
Fulfil a new contract
Smooth out time lags between invoice payments
Start a business
Invest in an established business or buy an existing business

You can also use a short-term business loan to take advantage of a new business or investment opportunity that needs immediate action and funding.

Where you can obtain a short-term loan in Australia

The good news is there are many short-term loan providers in Australia, available from a range of lender types. Here’s a snapshot of the main institutions that provide short-term finance:

Banks: Traditional lenders are renowned for offering low-interest rates with strict lending criteria. A bank loan typically suits people with high credit scores (i.e. a good credit history based on paying off debt on time, demonstrated savings, not defaulting on a mortgage payment, and so forth). Banks often have lengthy application and approval processes – which is not ideal if you need funds quickly.
Private lenders: As the name suggests, a private lender is an independent financier backed by institutions and investors. As such, private lenders tend to be more flexible in their approach and product offering, and are attractive for those with lower credit scores seeking a fast application and approval process. Private lenders usually charge higher interest on loans, which are often deemed as riskier.
Non-bank lenders: These are financial institutions that are not banks, credit unions or building societies. Non-bank lenders don’t offer the breadth of products of traditional funding providers, but they are flexible on rates and fees – and therefore often appeal to self-employed borrowers due to less strict lending criteria.
Fintechs: A rapidly growing and dynamic sector within the finance industry in Australia, fintechs use technology to keep costs low (passing that onto borrowers in the form of lower interest rates) and algorithms to better judge risks (ensuring fewer defaults and better deals for approved borrowers).

You can apply online for short-term loans from a variety of lenders, with private lenders and fintechs offering a relatively simple application process, minimal documentation and fast funding (within three to five days from application).

Key takeaway

If you are facing a cash flow shortfall in your business or personal life, and you have equity in your property, a short-term loan can be used for up to 36 months for a variety of purposes.