You have choices! How to choose finance for a growing business

Fortunately, there are a number of financing options available, so make sure you choose the right one for your business.

Know your timing

If you want to take advantage of an opportunity with a deadline attached, consider a non-bank lender that can make fast decisions and deliver funding within 24–48 hours.

This is also a wise option if you know you’ll have a temporary cash flow shortfall for a few weeks or months – while you’re waiting for invoices to be paid, investing in stock or staffing up for a busy season. When time is short, you shouldn’t waste hours filling in endless paperwork or standing in queues at a bank.

Know your repayment obligations

When seeking finance for your business, it’s important you understand the amount you need to pay back upfront – that way you can make a decision about the loan’s real value. Using your credit card might seem like a good idea, but most cards have interest calculated daily on the outstanding balance. This means interest costs will compound every day. If you don’t remember to pay regular amounts, and keep using the card for other purposes, it’s easy to lose track of how much of the loan you’ve repaid.

Some non-bank lenders use a factor rate instead of an annual interest rate. This is applied to the amount at the time you settle the loan, and then divided into equal repayments over the loan’s term, so you know the total amount due from the beginning.

In simplistic terms: (loan) + (interest factor) = (total amount due) / (number of weekdays or weeks in term) = (daily or weekly repayment).

Once you know the total amount due you can calculate ROI, factor your repayments into your cash flow forecast, set up automatic repayments and start growing your business.

Read the fine print

Traditional lenders can surprise borrowers with hidden application fees, origination fees, brokers’ fees and even variable interest rates that may increase throughout the loan term. These can really add up, even if the headline interest rate appears attractive.

In contrast, non-bank lenders have lower overheads and make clever use of technology to reduce the cost of processing your loan application. There is usually only one origination fee and this can be added to the loan amount so you don’t have to pay cash upfront in order to borrow.

Consider security

Traditional loans typically require the borrower to offer an asset as collateral for the loan, such as property or business-owned equipment like a car. It’s important to thoroughly consider the risks associated with using your house or other key assets as security. If things don’t go as planned, you could be forced to sell your family home.

However, there are benefits to using property security if you are lucky enough to have it, especially if you are borrowing a significant amount. Offering security will reduce the cost of your loan, as it reduces the risk to the lender (and puts it on you).

Many small business owners don’t have security to offer in the first place, so a loan from a non-bank lender could be ideal. Lenders like Prospa assess risk by looking at the quality of your business, the length of the loan, your industry and a host of other data points to tailor a solution to the risk profile of your business. As a result, security is usually not required to access the funds.

Seek professional advice

Many small business owners turn to their financial advisor when seeking a business loan. Without financial training, it’s hard to accurately compare all the options – from traditional solutions like a credit card or overdraft, to loans from non-bank lenders, to borrowing from the bank of Mum and Dad. Use their industry knowledge and expertise to guide you towards the best solution for your business – the one that will save you time and money in the long run.