15 Feb Are short term business loans safe?
A question we get from time to time is “Are short term business loans safe?”.
The short answer to that question, is “YES…but”.
The longer version is that any form of borrowing comes with an element of risk.
That risk could be:
- Interest rate risk
- Serviceability risk
- Security risk
- Credit rating risk
- Liquidity risk (if you really want to go down a dark hole)
- Risk to guarantors
- Usability risk
Any time you borrow money, be it for a personal loan; a swipe of the credit card; or a short term loan for commercial use you are unlocking a level of risk.
The trick to borrowing sensibly is mitigating the risk.
This can be achieved through:
- Stand-alone securitisation (this is generally how we operate, it is NOT necessarily how your bank will operate)
- Sensible LVR’s (Loan to Valuation ratio – not borrowing too much against the value of the security asset)
- Forgoing the interest rate you believe you deserve, for the one that actually allows you to meet your goals (we see this particularly with residential clients, who want the cheapest rate, and then realise that the cheapest rate product doesn’t allow them the flexibility or features to actually operate as they need it to).
- Borrowing what you can reasonably afford and expect to pay back.
To find out more about how sensible short-term lending can assist you in achieving your project goals, drop us a line here.
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