More and more Australian small businesses are turning to non-bank lenders than ever before. With traditional banks rejecting 74 per cent of small-medium enterprise (SME) business loan applications, we can understand why so many successful small business owners are exploring other options to finance their business operations.
Some of the main reasons why the alternative loan market has become so popular include;
- quick turn around times,
- streamlined application processes
- and unsecured loan options.
The non-bank lending industry has brought a new level of ease to obtaining funds in Australia which has helped hundreds of thousands of businesses reach their commercial potential.
You want to jump on this opportunity because you know you will be able to have very healthy profit margins on the stock by acquiring it at this bulk discount price, but cash flow won’t allow it at this very moment.
So, you have a few options:
Apply for a traditional bank loan. The application process will be long, you will need to jump through hoops to provide all the financial data requested, they will most likely require security (e.g. securitised against your family home) and the outcome could take weeks.
Put it on a credit card. Generally, not a suitable facility for large expenditure, it could also restrict the credit limit available for day to day smaller cash flow requirements.
Apply for a loan through a non-bank lender. Alternative finance providers have a simple and online application process and provide an outcome in days – not weeks or months like the banks. Plus, unsecured loan options are available – you don’t need to own property or assets to be eligible for funding.
This is just one example of why an SME owner would choose a non-bank lender. Let’s look at the main reasons why Aussie business owners borrow funds from lenders.
To run a successful business, you will surely agree that inventory levels are critical. We work with lots of businesses who look to capitalise on an opportunity that requires the purchase of inventory using a business loan. It could be because there’s an upcoming busy period, an opportunity to get a substantial discount by purchasing stock in bulk, or the business is looking to ramp up their trading.
- Working capital
Working capital is the money your business has available to cover day-to-day business expenses. These funds act as a safety net during slow periods or when unexpected costs arise. Having enough capital on hand is critical for cash flow stability and overall business success.
In different industry sectors the need for equipment (and the price of assets) is vastly different. Purchasing new assets that are essential to your business’s output or efficiency is the reality for many businesses.
- Fit-outs & renovations
A business loan can help to make fit-outs and renovations of office or trading spaces a more cash flow friendly exercise. Conducting such an undertaking can be a big cost to a business upfront, so many businesses seek out a loan to break up the cost into manageable weekly payments.
Any entrepreneur will tell you that they couldn’t think of a better reason to take out a business loan than to expand. Taking your business to the next level can be costly. Expansion may include new premises, marketing, stock, more employees – or all these things and more.
- Tax debt
Some businesses take out a short-term business loan to cover BAS or tax payments without having to dip into existing business finances. Others look to finance these tax obligations as they have received a bill for an unexpected amount which was not accounted for in their budgets.
- Hiring new employees
A lot of the time when growing a business extra staff will need to be hired to help with the expansion. Business loans can be a handy tool to make the plunge to cover new employee wages, especially until you’re turning over enough money within the business to do so without assistance.
Our golden rule for business finance: Make a return on your investment.
When it comes to deciding if getting a loan is the right move for your business, I encourage you to think about the ROI.
The main goal of any funding should be one of three things: profit, gaining business efficiencies or business growth.
Nathan is the CEO and joint founder of Funda. As a leading finance partner in Australian business lending, Nathan is responsible for innovation, strategy and investor relations. An experienced Company Director, with a background including finance, mining and property, Nathan understands the needs that small businesses have for fast and fair funding options.