Business Lending
Looking to grow your business? Our local Mortgage Choice Melbourne brokers can help you understand the finance options available and do all the legwork in sourcing the right business loan for your needs.
Our brokers have experience with the following business requirements: small business lending, equipment finance and commercial property lending.
Small business lending
When small businesses find themselves equity rich and cash flow poor, a small business loan can be a helpful solution.
Reasons for taking out small business loans
A business owner might take out a loan to cover one-off expenses such as buying new equipment, paying for training, or renovating their facilities. Alternatively, loans might be used to improve business cash flow and provide flexible access to a pool of funds to be called upon as needed.
Varieties of small business loans
There are a variety of loans available to businesses. A business loan can be structured either on an upfront basis, where the entire value of the loan is withdrawn at once and paid back in regular instalments, or it may be on call, with payments determined by the amount of the loan that the business has drawn down.
The different business loan types naturally come with varying interest rates and repayment conditions.
Line of credit or equity loans can provide access to funds by allowing the business to draw on an account balance up to an approved limit. These loans are highly flexible and are commonly used to fund smaller capital requirements. They are usually secured against property. This means that the interest rate for a line of credit is likely to be lower than that for an overdraft, although failure to make payments will place the secured asset at risk of repossession.
Building your business
A second loan type is a Term Loan, which is a fully drawn advance aimed at funding long term business investments that improve the earning potential of the business, such as new equipment. A fully drawn advance will generally be structured over a fixed term with scheduled repayments, and will be secured by a mortgage over a residential or commercial property, or other acceptable asset.
The use of security generally means that the interest rate will be lower than for other business loans, and it may be structured to a fixed interest rate that delivers certainty in terms of repayments.
If the goal of the business loan is to provide access to capital equipment, another option could be lease finance. This is where, for example, the business enters into a contract with a finance provider who buys the required asset, and then the business leases the use of that asset for a fixed amount over the life of the contract. When the contract ends, the business has the option to renew the lease on the existing equipment, take out a new lease on new equipment, or arrange to buy the leased item outright.
Business credit fitness
To qualify for a small business loan, your business must be in sound financial shape. It may also help if you can provide some form of security against the business loan, such as commercial or residential property. If the loan is unsecured it is likely to come with a higher interest rate.
If you're seeking a small business loan, talk to our Mortgage Choice Melbourne experts. We can discuss the different business loans and providers to find the small business loan that will be best suited to your business.
We understand small business
When you’re in business, having the right finance and risk planning in place can mean the difference between thriving and surviving.
And no one is better placed to understand your needs than another small business owner. This short video shows you how we might be able to help.
Equipment Finance
Equipment finance can help you purchase assets without eroding your working capital. It is a popular form of finance for businesses that want to better manage their cash flow.
Uses of equipment finance
Using this form of finance removes the need to spend large sums on equipment by enabling you to essentially rent or lease items over a set period of the contract.
This form of finance can be used to acquire a range of expensive equipment, such as vehicles, forklifts, IT hardware, telephony systems, industrial machinery and other forms of plant and assets. This finance does not cover trade and operating expenses or property.
Equipment finance is particularly helpful for businesses that want to manage their cash flow, and finance companies may take into account seasonal cash flow variation when creating a finance payment plan.
Choose the right arrangement
Various types of equipment finance are available, including hire purchase, finance leases and equipment loans.
Hire purchase will suit a business that wants to eventually own the assets outright, although the finance provider owns the equipment until the contract is paid out. A deposit is usually not required.
An equipment finance lease is similar to a hire purchase arrangement, but rather than making payments with the goal of owning the equipment, the business negotiates a new arrangement at the end of the lease contract, and either continues leasing the existing item or opts to lease a new item. This enables a business to have access to the latest equipment without constantly spending capital.
Another option is an equipment loan (sometimes known as a chattel mortgage), which is a fixed interest loan secured by a mortgage over the asset. This arrangement has some tax advantages, in that GST is not paid on loan repayments.
How to equip your business for growth
No matter whether you’re just starting out in self-employment, or you have an established business enjoying strong growth, chances are at some stage you’re going to need new equipment. We can help you work out the best finance options to fund this equipment - from espresso machines for cafés to the latest tools for tradies.
Watch this short video to find out more.
Commercial property
There is a wide choice of finance options available to purchase a commercial property, and the options best suited to your needs will depend on whether you are buying as an investor – either directly or through your self-managed super fund – or as a business owner for use in running your business.
Our brokers can work with you to pinpoint the finance options best suited to your needs – looking at both the rate and features that can help you manage the loan.
In the meantime, let’s see how a commercial property can work under two different scenarios.
- Buying commercial property as an investor, and
- Buying commercial property for your business premises.
Buying commercial property as an investor
Commercial property works along similar lines to residential property though with some noteworthy differences that investors should be aware of.
On one hand, a commercial property can deliver both ongoing rent paid by the tenant – or in the case of commercial property, the “lessee”, as well as long term capital growth.
But in many ways the similarities stop there.
Longer leases, the potential for higher returns, but with higher risk
To begin with, when you buy a commercial property, GST (worth 10% of the purchase price) is payable on your investment. You need to factor this into your buying budget. Many lenders will allow you to borrow this GST amount as a second loan over a 3 month period, so if your accountant lodges your BAS you can claim the GST & repay the GST loan.
Also on the plus side, commercial leases tend to be long, usually a minimum of five years, and unlike residential property, the lessee pays for many of the costs associated with owning the building such as repairs and maintenance. This can make commercial property a lucrative and low cost investment.
On the downside, commercial property is also regarded as a higher risk investment than residential property. While the rent returns can be healthy, commercial properties can also experience longer vacancy periods. Commercial properties can be harder to sell too because the pool of buyers is typically smaller than for residential property, and the more specialised your property, the smaller the market may be.
Factors outside your control
Unlike residential property, where people always need a home to live in, the fortunes of commercial property can very much hinge on the buoyancy of the local economy.
Safeguard against this by investing in a commercial property in an area with a diverse economy, buying a building that may appeal to a broad range of businesses, and reviewing your cashflow to see how well you would handle periods of vacancy.
Professional support is essential for a good deal
Your Mortgage Choice broker can discuss finance options with you as well as explaining loan strategies to own commercial property including through a self-managed super fund.
Buying commercial property for your business premises
There’s a lot to be said for owning your business premises, and an investment in commercial property can let you do just that.
If you run your own show, chances are you know just how important it is for your customers to associate your venture with a particular patch of turf.
Leasing rather than owning your premises can be more affordable in the short term but you simply don’t have the same security of tenure.
It’s a good argument to invest in your own premises, and there are a number of ways to achieve this goal.
Buying in your business’s name – the property becomes an asset of the business and the cash flow from your business will be used to repay the loan. As you build equity in the property, you can use it to secure loans for other business purposes.
Buying in your own name or through a self-managed super fund – you will enjoy the capital appreciation for the property and your business will lease the property from you. You can build up your personal wealth while also providing your business long term access to the premises.
Your Mortgage Choice broker – a source of expert advice
Commercial property can be a complex area, and we recommend speaking with one of our brokers to discuss the different financing options and lender requirements. We will work with your accountant to find the right solution for you. As small businesses ourselves, we understand how commercial finance works, and can provide valuable insights to get your loan application across the line.
