Budgeting

Why Banks Don’t Work

You might assume that going directly to the bank is your best option for securing a loan, but think
again. Banks are known for:

  • Excessive credit expectations— often most consumers and business entrepreneurs can’t
    meet
  • Reporting your enquiries to your credit file and thus lowering your credit score
  • Rejecting finance applicants with average or good credit files because of just one negative credit file item
  • Rejecting applicants who need assistance preventing foreclosure or paying off overdue bills
  • Charging exceedingly high interest to those with poor credit files
  • Having no access to private lenders or alternative private loan options, meaning you’re stuck with their products only

Banks are notorious for not assisting consumers and business owners in their time of need.Instead,business entrepreneurs and consumers often turn to the services of alternative lending.

What to look for when choosing your business loan:

There are many different business lenders in Australia, all offering different business loans.

Loan Terms

The actual repayment amounts will depend on the term, or length, of the loan. To figure out what kind of a loan term is right for your business you will have to calculate how much you can afford in in repayments. Essentially the longer the loan term, the less you will have to pay in each installment but the overall interest cost will be higher.

Security

Secured loans can be cheaper however, they also require you to put up collateral, or security, for the loan. This can include various types of assets, including property or business assets. While secured loans will have a lower interest rate, be aware that the lender can seize your property or asset if you can’t pay on time. For this reason, many small businesses aren’t comfortable putting up their house as collateral for a small business loan in Australia. Many other small businesses simply don’t own an asset or property that can be used as security.

Fee Structures

Different lenders will have different fees for their small business loans. These can include establishment or application fees, ongoing monthly fees, early repayment fees and exit fees. While one lender may offer a lower interest rate, you could be paying more overall in loan fees when compare to another lender with a slightly higher interest rate.

Business Documentation

Some lenders (mostly banks) will ask for detailed business plans when applying for small business loans in Australia. These documents should include a profit and loss budget, cash flow projections and a basic financial history at the least. Some lenders won’t require this kind of documentation; instead, they’ll use business bank and accounting data when assessing the loan application.

Budgeting

Satisfaction Lies in the Effort

What to look for when choosing your business loan:

There are many different business lenders in Australia, all offering different business loans.

Loan Terms

The actual repayment amounts will depend on the term, or length, of the loan. To figure out what kind of a loan term is right for your business you will have to calculate how much you can afford in in repayments. Essentially the longer the loan term, the less you will have to pay in each installment but the overall interest cost will be higher.

Security

Secured loans can be cheaper however, they also require you to put up collateral, or security, for the loan. This can include various types of assets, including property or business assets. While secured loans will have a lower interest rate, be aware that the lender can seize your property or asset if you can’t pay on time. For this reason, many small businesses aren’t comfortable putting up their house as collateral for a small business loan in Australia. Many other small businesses simply don’t own an asset or property that can be used as security.

Fee Structures

Different lenders will have different fees for their small business loans. These can include establishment or application fees, ongoing monthly fees, early repayment fees and exit fees. While one lender may offer a lower interest rate, you could be paying more overall in loan fees when compare to another lender with a slightly higher interest rate.

Business Documentation

Some lenders (mostly banks) will ask for detailed business plans when applying for small business loans in Australia. These documents should include a profit and loss budget, cash flow projections and a basic financial history at the least. Some lenders won’t require this kind of documentation; instead, they’ll use business bank and accounting data when assessing the loan application.

Budgeting

Small businesses are constantly at a disadvantage when seeking funding from the banks.

Small businesses are constantly at a disadvantage when seeking funding from the banks.
WHY?

Because the banks require collateral 100% of the time for loans under $1 million, but that percentage dropped to 63% for loans of $100 million. Similarly, personal guarantees are typically required for loans below $5 million. If your business cannot provide equipment, buildings, inventory or accounts receivable, the bank has minimal options to secure repayment of the loan, making your deal unattractive. Typical reasons the bank will reject your application;

1. Unstable cash flow; for some seasonal businesses extreme cash flow highs and lows make fixed loan repayments unpredictable

2. Insufficient security: banks requirement for collateral to secure the loan is mandatory to satisfy risk management

3. Overload of debt: the banks have lowered their risk debt exposure to small business making it considerably harder to obtain an approval

4. Uncertain credit risk: banks are reluctant to fund untested or new markets, as they always use industry standards and benchmarks when assessing risk

5. Insufficient trading history: banks want confidence that the business is managed efficiently and can prove capacity to repay the loans

6. Untested business model: establishing a viable business model takes time and the banks are not willing to take the risk with you

7. Weakening economy: if current economic conditions are weak the banks factor this in and tighten their credit criteria in the event of foreclosure.

8. High-risk industry: if a bank believes you are operating in a “risky or weak industry” then you are less likely to have your application approved

9. Unclear market growth: banks are not venture capitalist or innovation risk takers and would not fund an emerging market until supply and demand is proven

10. Poor management: banks look for a strong and diversified management team to implement the business plan to achieve its projected revenue

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