The Australian lending market is flooded with many different types of loan products, and this poses several questions for hopeful small business borrowers, especially those who are time poor (and who isn’t?):

• What kind of loan product do I need?
• How much can I afford to borrow and repay?
• Where can I get the best interest rate and other conditions?
• How can I compare the available loans?
• What does all the technical jargon mean?

This is where the finance broker comes in. A finance broker is an intermediary between the lender and borrower, arranging a loan in return for a fee.

How finance brokers can help small businesses

Capable finance brokers:

• Have a detailed knowledge of the loan market
• Are independent and not tied to any particular lender
• Can assess your financial situation and needs and find suitable loan products with competitive interest rates
• Explain any financial and legal terms in the documentation in simple language
• Assist you throughout the loan application and settlement process, and beyond

Finance broker fees

Finance brokers act for the borrower, not the lender, but in the vast majority of cases it is the lending financial institution, not the borrower, who pays the broker’s commission fees.

Preparing to meet your broker

To get the best results, it’s a good idea to do some preparation before your first meeting with your broker. Plan to explain clearly what your business does, how it is structured, and who your main competitors are. Think about your business goals and targets, opportunities and risks, so that you can communicate these clearly. Be prepared to outline the purpose of the funds you hope to borrow – that is, provide details of how you will use the cash to help your business proper.

You should also take the following documents along to the meeting.

• Latest financial statements: Your balance sheet and Profit & Loss statement, your cash flow statement, any management accounts, your budget or forecast for the coming year.
• Business tax returns: The last two years’ returns.
• Business Activity Statement: Take a year’s worth of BAS – the last annual statement, or the last four quarters.

Questions you should ask your broker

Your finance broker will certainly be asking you many questions, but there are also lots of questions you need to ask in return, including:

• Would a line of credit, or a term loan, or lease finance, or some other form of finance, suit my particular needs best?
• If you think a term loan is best, what term do you recommend?
• How much do you think my business can afford to borrow and repay?
• Will I need to offer property as security for the loan? Will it need to be my home or commercial property?
• Should I be looking for a fixed or variable interest rate?
• How many lenders do you work with?
• Do you have testimonials from previous customers?
• How much is your commission, and who will pay it, me or the lender?

While your broker may not be able to answer all of these questions at the first meeting, you should expect full responses before you commit to the recommended finance.

Talk to us now

We’re here to help you find the best finance solution to help your business grow, contact us today.

This article was originally published by oneaffiniti

The economic conditions in Australia are rapidly evolving, with inflation increasing by its biggest margin since the introduction of GST. Salaries, wages, and the costs of goods are increasing – it’s a challenging environment for even established small businesses. In fact, more than half (57%) of Australian businesses experienced an increase in the costs of doing business in the first quarter of this year.

A survey by software company Xero and professional services firm Accenture recently found that nine in 10 small businesses in Australia had at least one month of negative cash flow last year. It also showed that 20% of small businesses spend more than they earn for at least six months of each year.

With this in mind, it’s important to understand how your business can be impacted by disrupted cashflow and what options are available to mitigate potential financial stress.

Key areas impacting the cost of business

Bumpy cashflow can impact your operations in several ways including:

• Additional stress about meeting your input costs
• Challenges with forecasting what you should charge for your services and products
• Inability to take advantage of bulk purchasing low-cost stock
• Lacking a buffer to meet rising costs due to inflation, including insurance premiums
• Increased difficulty with planning

Check this free template from business.gov.au to help understand your cash flow. With those figures in hand, you may find you’re eligible for financial options, depending on your unique business circumstances.

Financial solutions: IPF

With rising insurance premiums, businesses may reconsider their investment in particular aspects of their business insurance. Instead of being locked into paying an annual premium upfront, there’s another, more flexible option called insurance premium funding (IPF).

The Australian Finance Industry Association says just under a third of businesses policies have opted for IPF. This funding option allows businesses to pay monthly installments, usually over a 10-month period. If you have multiple policies, you can also bundle them together, reducing your large upfront costs into one smaller monthly payment to cover your business risks.

Debtor finance

Waiting for your customers and clients to pay your business can be frustrating, but there’s also value in unpaid invoices.

Did you know you may be able to borrow up to 80% of the value of your customers’ unpaid invoices to your business? Known as a cash flow finance loan, it does attract a variable interest rate, but helps unlock funds to run your business. Businesses don’t need property assets or working capital to secure the loan.

Inventory finance

Freeing up the cash you have tied up in business stock is possible through inventory finance. A broker can set this up, and it involves a financial institution paying for the stock up front, and the borrower making repayments when the stock is sold.

Some businesses opt for inventory finance so they can boost their range of stock, yet have less security at risk.

Asset finance

Meanwhile, your business could choose from a range of other financial options called asset finance. This type of finance is used to acquire assets or equipment needed for businesses to grow. Generally, this option allows a business to make use of an asset for a period of time in exchange for a regular payment.

This solution is applicable to a wide range of assets including heavy machinery used in construction and agriculture, vans and vehicle fleets, or smaller items like coffee machines or commercial ovens.

Some of the most common types of asset finance include:

• Finance lease – wherein ownership of the asset is transferred to the borrower once the lease period has ended
• Rental agreement – the financial institution purchases the asset and rents it to the borrower for a fixed term, at the end of which the business can choose to return, replace, purchase or continue to rent the equipment
• Specific security agreement – formerly known as a chattel mortgage, this finance allows businesses to own the asset upon purchase and the financial institution secures the loan by registering a charge over the equipment
• Commercial hire purchase – the financial institution takes ownership of the equipment and hires it to the borrower with regular repayments

For more information, contact us to discuss customised finance solutions for your current business circumstances.

This article was originally published by oneaffiniti

As a small-to-medium-sized enterprise (an SME), deciding whether to buy an asset to invest in your business, or keep those funds in the bank can be a source of confusion.

With the end of another financial year upon us, it’s worth investigating the Commonwealth Government’s tax incentives.

Claiming depreciation on your business assets can be complicated, so we’re exploring one of the most attractive tax depreciation incentives for small businesses, i.e. the temporary full expensing.

Temporary full expensing (TFE) incentive explained

This incentive allows eligible businesses to claim an immediate deduction for the business-use part of an asset’s cost. You can claim it in the year the asset is first used or installed, or ready to be used for a taxable purpose.

Full expensing refers to the business portion of an asset’s cost and/or improvements (such as the upgrade of an asset). The TFE incentive does not mean you can automatically claim a deduction for the full asset price in your tax return.

For example, this financial year you may have bought a printer for your small business, but find you’re also using it for non-business matters. If you’re not tallying the pages, aim to make an educated and honest estimate about the percentage of personal printing use overall, then subtract that portion from the asset price you’ll claim on tax.

Who and what’s eligible?

The TFE incentive is only available to eligible businesses, including those:

• With an aggregated turnover of under $5 billion, or
• With a corporate tax entity meeting the alternative income test.

You can use the TFE incentive on business assets that are:

• New
• Second-hand, or
• Improvements to existing ones.

There are conditions on claiming, such as when the asset was acquired, and when it was first used, or installed ready for use. For both new and second-hand assets they must be first held, first used, or installed ready for use for a taxable purpose, between 6 October 2020 and 30 June 2023.

Where the asset is second-hand, the eligible entity’s aggregated turnover must also be less than $50 million. Refer to the ATO’s website for more information.

More guidance

While the TFE incentive may sound simple, there’s more to it. As an eligible SME, you may need more financial guidance on how it interacts with:

• The instant asset write-off scheme
• Backing business investment rules
• Other areas of income tax law.

The ATO’s website has these details and links for more information.

Be sure to seek tax and financial advice for your unique business circumstances to calculate your deduction and see how it could impact your cash flow or finances in the short term. If that advice supports your decision to invest in assets, reach out to your broker for tailored finance options to suit your needs.

This information is for general information purposes only. The information contained herein does not constitute financial or professional advice or a recommendation. It has not been prepared with reference to your financial circumstances or business and should not be relied on as such. You should seek your own independent financial, legal and taxation advice as to whether or not this information is appropriate for you.

This article was originally published by oneaffiniti

Small business financing enables business owners to plan their finances and maintain steady cash flow throughout the year. However, the holidays often bring an influx of unique financing challenges that can disturb your business model.

Understanding how financing works and what lenders look for will help accelerate your financing approval and receive additional working capital when you need it, so you aren’t scrambling for cash or considering higher cost alternatives.

 

How long does it take for finance approval?

Approval for business loans is a dynamic process. Some loans can be applied for, underwritten, approved and funded within hours, whereas others may take weeks or months depending on the loan type you are seeking.

For example, let’s say you’re a hardware store owner building a warehouse to store a new range of inventory. You’ll need a forklift to handle this new storage. Equipment finance is a good choice as it allows you to remain agile with your cashflow, while making low monthly repayments. These applications can have a relatively fast turnaround with approval often received within 24 hours, dependent on your chosen lender. In contrast, if you are purchasing a new commercial property to expand your business, commercial real estate loans can take up to 60 days or more before they are approved.

The key to understanding the loan approval timeline is to identify the type of loans you need and what you plan to use the funds for. Your broker can give you an indication of how long the process should take.

 

Get your documentation in order

Business loans generally require more documentation than home loans. To ensure you have the best chance for quick loan approval It’s important to have the relevant records prepared. These include:

• Financial statements – Displaying your assets, liabilities, net worth positions, income and expenses.
• Business Financials showing Last 2 years of Profit and loss as well as Balance Sheet statements
• Proof of individual income – In the form of your two most recent tax returns and an ATO Notice of Assessment.
• Bank statements – Presenting a holistic picture of your financial position, including any loans and credit cards you may have with other financial institutions.
• Identification – This could include your driver’s licence or passport. If you’re an existing customer, this may not be necessary.

 

 

While it can be harder for new and start-up businesses to receive loan approval, there are details you can provide to ensure the result of your application is favourable. These could include:

• Business plan
• Cashflow projections
• Business Activity Statement (BAS)
• Interim financial statements
• Contracts (current or future agreements with customers)

When purchasing equipment, there are also asset-specific items you will need to provide, such as:

• A vendor-supplied copy of the condition report
• Interstate registration transfer and insurance
• Supporting evidence on what the asset will be used for
• A broker can help streamline this process by providing you with a checklist of the required documents and assist you in sourcing them.

 

Be prepared for common questions

All loans contain a risk factor for both the borrower and the lender. The lender risks losing their capital if the borrower defaults, and the borrower needs to ensure they can make their loan payments to avoid collections and excessive surcharges.

Lenders will want to know:

• Whether you can afford the monthly payments?
• How much funding do you need?
• What you will do with the funds if approved?
• How you plan to repay this loan?

Although each lender has its unique criteria, small business owners should understand the general criteria before applying for additional financing.

 

How a broker can help

When you work with a broker, you have an advocate representing you to multiple financing lenders.

Working with a broker provides peace of mind as they answer your financing questions with your best interests at heart, negotiate interest rates and provide invaluable insight, freeing up your time and resources to focus on your business.

 

This information is for general information purposes only. The information contained herein does not constitute financial or professional advice or a recommendation. It has not been prepared with reference to your financial circumstances or business and should not be relied on as such. You should seek your own independent financial, legal and taxation advice as to whether or not this information is appropriate for you.

This article was originally published by oneaffiniti