27 Jul Benefits of short term lending
Regardless of the size of a business, cash flow control, supply and deficiency is a common issue across industries. The SME Growth Index report released in early 2020 found that 61% of SME’s cited credit conditions as a growth barrier, while a further 51% cited credit availability was a growth barrier. Back in 2018, 21.1% of small and medium businesses (SMEs) said they were unable to take on new work because of cash flow restrictions. Cash flow restrictions were found to have prevented businesses from generating more revenue in the case of 92.7% of SMEs.
Given these numbers were from early 2020, and things have, well, changed somewhat dramatically, we can only assume these barriers to growth through traditional funding measures are impacting more and more small businesses in Australia.
Borrowers are telling us they are finding it increasingly difficult to secure funding from traditional sources and are looking for alternative forms of short-term lending. Private Lending provides an accessible avenue for businesses to fund their requirements and does so quickly and with little to no reliance on financials. The private lending industry has evolved to become a more conventional method of securing funds with less effort required and more appealing features and benefits.
Below, we explore the benefits of short-term lending and how it could help you or your clients business grow.
What is short-term lending?
Short-term lending provides your business with the ability to borrow an amount of money, with peace of mind in knowing what your interest commitment will be upfront. As the name suggests, loan terms are shorter than your average long-tenor business loan, generally having a term from 2 weeks to up to 3 years for lending amounts up to $5 million.
When might short term lending be the right choice?
If you want to strengthen your business now and into the future, you might consider purchasing a new property, buying a piece of equipment that will improve efficiency or simply seek to fill a cash flow gap.
A short-term loan can be an efficient way to access new capital, that when used responsibly, can increase your revenue in the long term. The key is to ensure you have a clear strategy for how the money is used to grow your business. This helps to negate the risk associated with the loan and puts the focus back on using the funds to fund growth.
The Government recently announced an extension to its $150k instant asset write off to 31 December 2020. If your business needs to spend some cash upgrading equipment, now might be a good time. Have a chat to your Accountant to find out more.
Some ways in which short term funding can help include:
- Expansion of your business when you need extra space, equipment, or staff to accept new business opportunities that are coming your way
- To even out any cash flow fluctuations due to operating in a seasonal industry that experiences bumper months mixed with quieter months
- When an opportunistic property or stock purchase comes knocking and you need to act quickly
- To pay out an outgoing partner in the business
Why private lenders?
Borrowers are finding it increasingly difficult to secure funding from traditional channels so are looking to private lenders to fill the void.
We assess borrowers on a different set of criteria than more traditional banks.
Private lending is exit strategy based, giving you the added benefit of being able to act quickly when opportunities arise. We don’t need to see an extensive background and history of financials, and aren’t focused on a perfect credit history or seeing a set number of presales for a project. This makes short-term private lending the smart choice to jump on time sensitive opportunities for long term growth.
Following the 2019 Royal Commission, borrowers trust of the big four banks took a hit and businesses are looking for an alternative that offers transparency and reliability. They are seeking straight forward lending processes that are fast and efficient.
Private lending meets that need for borrowers.
Short-term lending offers quick access to funds
A short-term business loan is ideal for when the opportunity is here and now. Given the current economic climate, banks are understandably more risk averse than previously. Unfortunately, traditional lenders are experiencing delays due to frontline staff working with businesses affected by COVID-19, and the constant shifting of the current landscape is making it challenging for bank credit approvals to come through.
Business owners simply can’t wait for up to three months for a bank to look over their financials with a fine-tooth comb in the hope of having a loan approved. The opportunity will have flown right on by in that time, leaving your business with a potential loss of income or the loss of a property deposit if a settlement cannot occur on time.
When speed is critical to capitalise on an opportunity or to address a challenge, short-term finance makes sense. With flexible terms and competitive rates, this solution can give borrowers a quick decision, quick settlement, and an easy application process.
After an initial in-house assessment, we will let you know the likelihood of your proposal being funded. With loan offers often available within 24 hours.
Short-term lending has fewer requirements
Private lenders offering short-term solutions are exit strategy based. We put the focus on you and your collateral. With short-term lending, you:
- don’t need to provide us with all of your business financials
- don’t need to have perfect credit history
- don’t need to have pre-sales on your project
The end result? An increased chance of being approved to fund your business growth and reap the benefits well into the future of your business.
Because short-term lending has a limited payoff term, lenders are often more willing to take on slightly riskier projects than the banks.
Short-term lending delivers long-term benefits
The early bird gets the worm isn’t just a cute quote. There is a lot to be said for being able to act quickly when opportunity presents itself and reap the benefits over the long-term.
Say, for example, you have been eyeing off a warehouse in your local area. You notice a ‘For Sale’ sign has just gone up for the first time in twenty years. It’s in the perfect location and is the exact size space you are after.
A short-term property loan ensures you have the funds available to move quickly on the opportunity. You can secure the property and give yourself time to work out a long-term debt solution, generally through a traditional funding channel.
Or perhaps your supplier is having an end of year stocktake sale. Buying in bulk will allow you to save 30% on the stock. But you don’t have the cashflow to secure a large order. A short-term loan can help you secure the discount, which more than offsets the interest on the loan.
Both scenarios above deliver real and long-term benefits to your business over time. Benefits that you may have missed out on if you’d waited for traditional banking approvals.
Want to discover if short-term lending is right for you? Click here to get started with IBN Direct.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.