Budgeting Business

The Best Short Term Business Loans

Many SMEs tend to choose short term business loans because it is an easy way to get the money in a short period. Indeed, short term business loans can provide the money to settle down a temporary shortfall, to cover urgent expenses or to finance your business growth.

Let’s have a look at the best top 3 short-term business loans for your company.

Top 3 short term business loans

There are different short-term loans available with different advantages. Let’s analyse the key features of our three best short term finance options to ensure you choose the solution that best fits your needs.

  1. Unsecured Business Loans
  2. Business Line of Credit
  3. Invoice Finance Factoring

Unsecured Small Business Loans

An unsecured business loan allows you to borrow funds without providing collateral as security. This type of loan is easy to obtain with fast approval and can be an effective solution to seasonal ups and downs.

  • Up to $250k without collateral
  • Up to 36-month term (typically 12-month term)
  • Used for any business purpose
  • Trading for a minimum of 3-6 months
  • Quick approval process
  • Same day funding
  • Rates change from lender to lender subjected to application strength

Generally, lenders consider the application based on the business cash flow and the client’s credit history. Alternative lenders are willing to take a higher risk than financial institutions. Consequently, due to the greater risk, lenders offer a higher interest rate.

Lending criteria are different from lender to lender. At Lending Connect we care about our client and we work in order to secure the best deal with one of our partners.

General lending criteria for an unsecured loan:

  • Be an Australian Business with an active ABN
  • Annual turnover of minimum $75k
  • Trade for a minimum of 3-6 Months
  • Have a profitable business with a good cash flow
  • Show good credit score

Unsecured business loans are generally short-term by nature but in certain cases, our lenders can offer this type of loan from 3 months up to 3/5 years.

Business Line of Credit

A business line of credit is a flexible finance product that can help you with irregular or unpredictable cash flow difficulties. You only pay interest on the balance you use and can access money fast as they are required. Beside other loan options, the borrower does not receive the full loan amount at once, but only to cover business expenses.

  • From $5k – $100k
  • Flexible term
  • Interest-only on the amount drawdown
  • Set up within 1-2 days
  • Product approval lasts for 12 months before reassessment is required

Our lenders usually require your bank statements, balance sheet and income statements to apply for this loan.

Invoice finance factoring

our best short term business loansInvoice finance factoring is a type of loan that can offer a quick boost to your cash flow.  Businesses sell invoices to a factoring company at a discount and they help companies release cash from their debtor. The best option if you need cash as soon as possible.

To apply for this loan our lenders require:

  • ID document
  • Customers list
  • Copies of the invoices you want to factor
  • An aging report for your accounts receivables
  • Access to your accounting system

Are you looking for a short term loan?

At Lending Connect we can help you to choose the best finance options for your business needs. Get in touch with one of our expert consultants and see if you qualify.

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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.

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Why not seeking funding from 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 funding from banks can be rejected are:

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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Are banks your best option for securing a loan?

You might assume that going directly to the bank is your best option for securing a loan but think again, you might be wrong.

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. Timely access to funding makes a difference.

What to look for when looking for securing a 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 instalment 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.

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