Types of Loan Available for Startup Businesses Looking to Expand

Where you get funding and how you go about acquiring it can mean the difference between successfully expanding your business or dooming yourself with excruciatingly long processing, missed opportunities and delayed growth.

All money can sound good as long as you get it. The fact is – it isn’t. Sometimes it makes sense to tap a few different sources of capital other than banks. You can compare unsecured business loans here, for instance, and see how it differs from traditional business loan providers.

There are myriad financing sources available for Australian entrepreneurs. Here are some of the options.

Friends or family members with deep pockets. Fast and easy, little to no paperwork, and inexpensive. These loans come from the people who you know best, they know how hard you’re working for your business and they also know what they’re investing in. Keep everything professional by making clear agreements and laying out all conditions officially.

Government support. Business grants from the government can be very hard to obtain, but there are numbers of this loan type available to Australian SMEs and entrepreneurs. The territories and states support small business with unique programs. The Victorian Government Technology Innovation Fund, for instance, is a good option if your business solves a community problem.

Credit unions. These providers are cooperative, non-profit institutions that have several economic deposit funds in a member-owned space. It’s basically a lending by entrepreneurs for entrepreneurs, comparable to a small bank.  The members of a credit union create the policies, elects the board and are joint owners as well. They promote solidarity between borrowers and lenders and sometimes serves customers as a bank would. Credit union depends on trust and communication, each participant has an interest in making the union successful so interests are always aligned.

Selling shares. Shares represent part-ownership of a business and if the business trades profitably, all shareholders will get payments in cash, which is called dividends. Equities is another share market term for shares, which also represents part-ownership of a business. For instance, you can finance business expansion by selling 25% of your business to an investor. Say your business is valued $1 million, 25% would be $250,000 of capital to fund the expansion. The investor will also be entitled to 25% of your profit.

Venture capital. A high-risk capital which is directed towards young or new businesses with prospects of quick growth and high rates of return. This type of loan isn’t just only about money, but also of time and skills. Venture capital businesses will provide capital for development and research of a business idea, early stage businesses, later stage finance, expansion, and buy-ins of established businesses.

Alternative lenders. The small business online lending market is hugely popular in Australia as well as worldwide. Online lenders have grown about 175 percent yearly, compared to a decline of about 3 percent in the traditional banking sector. You can compare unsecured business loans to see a comprehensive comparison of banks and loans provided by alternative providers.

Unsecured business loans are types of loan that doesn’t require a collateral. The lender will only ask for basic business information, your personal information and previous earnings to determine if you can be granted a loan and how much. A good choice if you want to retain full ownership of your business.

End Note

So, what type of business loan do you think is the most applicable for your business? Share it with us in the comments below!

Leasing a Luxury Car

When shopping for a luxury car, you’ll find yourself with two options – either buy your car of choice outright, or lease it. For many years, the standard option for purchasing a luxury car has been to buy one, but the option of leasing a luxury vehicle is becoming more popular with drivers across the country. Here are four reasons why leasing is being considered a great alternative to buying when it comes to purchasing a luxury vehicle.

  1. You only have to worry about one monthly payment

Perhaps unsurprisingly, leasing a car is somewhat cheaper than buying a car outright. As the keeper of a leased car, you will be expected to pay a monthly fee to the lease company in return for use of the car. The monthly amount is calculated before you lease the car by subtracting the car’s estimated value at the end of the lease period from the car’s value at the time of leasing. The cost of your monthly payment is also likely to be influenced by the number of miles you are estimated to drive in the vehicle; a lower estimated mileage will ultimately translate into a lower monthly fee.

  1. You don’t have to think about affording car repairs

Leases are great for people who aren’t interested in keeping their vehicles for long periods of time. The average lease runs between 2 and 4 years and after that time you simply hand the car back to the lease company and pick out a new one. Because the lease times typically span just a few years, it’s likely that the manufacturer’s warranty on the vehicle will remain in force throughout your time as the keeper of the vehicle. This means that you won’t have to worry about paying to fix any problems that arise during your lease. As well as being covered by the manufacturer’s warranty, you’ll also have the opportunity to take out some form of maintenance contract with your lease provider; as part of your maintenance contract, you will be absolved from paying for tyre repairs, maintenance costs, or service charges throughout your lease period.

  1. You aren’t affected by vehicle depreciation

All cars depreciate in value – typically at an alarmingly fast and ultimately unavoidable rate. The good news for keepers of lease cars is that you don’t have to worry about your vehicle’s rate of depreciation. The car’s depreciation was estimated at the beginning of your lease and used to calculate your monthly fee. At end of your lease term, all you have to do is hand your car back to the lease company; the depreciation will then be absorbed by the lease company who own the car.

  1. You’ll have plenty of choice

If you’re interested in leasing a vehicle, there are plenty of car brands and vehicle models for you to choose from, whether you’re looking to lease an Audi, an Aston Martin, or a Ferrari. As the keeper of a lease vehicle, you’ll also be at liberty to swap your car at the end of your lease agreement for a newer, up-to-date model with all the latest gadgets. Unlike a car owner, you won’t have to worry about how much your car has depreciated during the time it has spent in your possession, how you are going to sell your car for a sufficient profit, or how you are going to negotiate the best deal on a brand new car.

 

4 Main Uses for a Business Line of Credit

In your personal life, you don’t always have the cash on hand to buy the things you need. Large, important purchases, like homes, cars, and furniture are almost always financed through loans, and even everyday shopping can go through credit. People need personal lines of credit to afford those items that help them live better ― and the same is true of businesses. Regardless of your business’s level of success, you should consider applying for a line of credit, and here’s why.

What Is a Business Line of Credit?

Typically arranged between a business and a bank ― or another stable financial institution ― a small business line of credit is a financial tool that establishes a loan balance from which the business can withdraw funds. Much like a personal credit card, the lender establishes a maximum amount, which the business cannot exceed. Every month, used credit accrues interest, and the business must make a minimum payment to the lender to avoid penalties.

There are dozens of ways for businesses to acquire cash, including other types of business loans. However, lines of credit differ because they are recurring, they are smaller and cheaper, and most importantly, they are controlled almost entirely by the business itself. Business leaders decide when and how much to borrow, when and how to use that cash, and how soon they will pay it back. As a result, lines of credit are more flexible to a small business’s typical needs, making them a must-have for healthy small-business finances.

The 4 Uses for Lines of Credit

That isn’t to say that lines of credit should be used for all a small business’s needs. For example, startup costs tend to significant, and few lines of credit will cover such sizable amounts. When you need quite a lot of cash and you aren’t sure when you can repay it, you should consider other financing options, like traditional loans, investors, or crowdfunding. However, once your business is up and running, you will probably need a line of credit to ensure it continues to run smoothly. Likely, you will find a reason to acquire a line of credit in the following four expense categories.

Working Capital

B2Bs and other businesses that tend to wait between project completion and payment often endure periods without much cash on hand. When your business gets tied up by its accounts receivable, you still need money to keep the lights on and the coffee flowing. By drawing down on a line of credit (the industry phrase for withdrawing funds), you can get the cash to keep your business running until clients pay their invoices.
Usually, working capital lines of credit are one-year terms with floating interest rates, and many lenders will limit your max credit to 70 percent of your accounts receivable.

Asset Acquisition

Providing less flexibility than other lines of credit, asset acquisition lines (also called asset purchase lines) are used only when you need to buy new equipment, land, or other assets. When you desperately need another bay of computers or wall of ovens, you send the invoices for your purchases to your lender, who will then pay roughly 70 percent of the costs to help your business obtain the assets you need.

Asset acquisition lines of credit mature, unlike other lines of credit, meaning once it expires, businesses can no longer draw down on it. Then, payments convert to principal and interest amortized over a fixed period, usually between three and seven years. These lines of credit usually have fixed interest rates, making them more manageable.

Construction and Expansion

Large-scale construction efforts ― like the building of a skyscraper or a housing development ― require large construction loans, but if your small business needs renovations or you have some other small-scale construction need, you can use a business line of credit. For example, refinishing a retail space to create a restaurant or combining separate office spaces into one are excellent uses for a line of credit.

One drawback of using a line of credit for construction and expansion efforts is that you will need to pay costs out-of-pocket initially. As with asset purchase lines, construction lines will repay you using the invoices you submit. Sometimes, lenders will visit construction sites to survey the work ― ascertaining that invoices are correct.

Guidance

One of the least common types of business lines of credit, guidance lines offer a business speed and flexibility. Essentially, a guidance line requires a lender to give pre-approval on future purchases. You might require a guidance line if you don’t need anything yet, but when you do have a need, you must act swiftly ― like a real estate company looking for properties to flip.The terms of guidance lines vary depending on what businesses expect to acquir

e with them. Usually, the loans are relatively sizeable and are repaid over a decade or more with an adjustable interest rate. Guidance lines mature after one year, but businesses can choose to renew the line as necessary.