Our commitment to our business and commercial customers is to provide you with the time, expertise and resources to negotiate the most favourable debt structures for your commercial or business finance situation as quickly as possible. Business finance for funding, leasing and structuring requirements are unique to each business situation. From simple advances against residential securities, through leasing, to complex business scenarios, Clearlight offers a range of assessment and service solutions. If you are looking for information on applying for a business loan or buying a franchise, call us now.

Overview of business loans

There are many different options with business finance and leasing. Your X Inc Broker can help you decide which option is best for each situation. Each lender has their own programs and their own requirements so a broker can also help you understand the differences between loan types and lenders, including related fees and charges. Essentially options boil down to variations of these types.

 

Fully Drawn Advances (FDA) or Business Term Loan

FDAs or Term Loans are where the full amount borrowed is advanced to the borrower on day one. These types of loans are generally over longer terms (up to 15 years) and may have fixed or variable rates of interest. Repayments may be “Interest Only”, or “Principal and Interest”.

 

Business overdraft

Overdrafts are probably still the most common type of finance used by businesses. An overdraft is a line of credit attached to a cheque account which allows business to operate on a day-to-day basis. The use of an overdraft is referred to as “working capital”. Overdrafts are charged at a variable rate of interest, with interest being calculated daily on the balance outstanding. The balance of an account with an overdraft facility should ideally fluctuate between debit and credit as cash outflows and inflows occur.

Essentially this facility offers:

·         reduced timing differences between payment of creditors and receipt of money from your debtors

·         the ability to pay interest only on the funds you use

·         a variable interest rate

·         fluctuating balance with no set repayments

·         access to your funds in a variety of ways including cheque, online or telephone banking

Sometimes collateral is needed for a business overdraft, however some lenders do not require it. While business overdrafts are great for freeing up your liquid capital, they’re not necessarily recommended for long-term financing needs as the interest rates can be higher.

 

Leasing

There are different types of leases, but generally leasing is used for financing the purchase of assets like cars, telephony, computers, equipment, machinery etc. It is a popular form of financing as it saves spending the business’ capital, but of course the borrower doesn’t own the goods and in effect pays “rental” to the financier. The full lease payment is tax deductible if used 100% for business, but the value of the item cannot depreciate over time. A lease generally requires that a pre-agreed amount (balloon / residual) will be owing at the expiry of the term. For more specific information on leasing, click here.

 

Commercial hire purchase

Hire Purchase is similar to leasing except that the item is seen to be owned by the borrower. This means that only the interest payments made on the purchase are tax deductible. Depreciation is also allowed as a tax deduction. The interest rates on both hire purchase and lease are fixed for the term of the agreement. For more specific information on Hire Purchase, click here.

 

Debtor or Cash Flow Finance / Factoring

If you’re a successful wholesaler, manufacturer or service-based business who sells on credit terms, with debtor finance, you can borrow funds using the trade value of your debtors as collateral. This allows you to gain access to your accounts receivable prior to actually receiving the funds, maximising your business cash flow.

 

To qualify for debtor finance, you’ll usually need a minimum amount of annual turnover (usually in the hundreds of thousands range) and your business will need an established credit history. While this type of loan is harder to get than traditional loans, it may well be worth the effort if your company qualifies for one.

 

Inventory finance

With inventory finance, the lender will pay your suppliers invoices for stock in advance, and you repay after you have received and sold your stock. The facility can be used to purchase stock ranging from raw materials to be used in manufacturing, through to finished products for wholesale or retail. This can be done without any requirement for real estate security and there is no need for the stock to be pre-sold. (The stock can be sourced from within Australia or imported.)

 

Inventory Finance enables business growth and increased profits through an evergreen revolving line of credit for short-term stock financing. The facility enables you to purchase stock on extended payment terms that are aligned with your normal business trading cycle, from 30 to 120 days. It is a great finance solution for businesses whose financial needs cannot be met by traditional business lending facilities. Loans are typically available up to $3million and draw downs from $100k.

 

Through utilising inventory finance, your business is in a better negotiating position with your suppliers as they are paid in full, upfront and your orders can be larger and more frequent, reducing freight costs. A further advantage is that by using this finance your business retains the title to the stock, providing you with full flexibility in stock usage and sales.

 

Commercial line of credit

Lines of credit facilities let your business borrow money at competitive rates by using a variety of security options. An effective example is the ‘Business Mortgage Loan’ following.

 

Business mortgage loan

A loan which is especially suitable for business people who have a residential property to use as security is a Business Mortgage Loan. By borrowing against your residential asset, you can keep your interest rate down and effectively operate in a similar fashion to a line of credit against your residential mortgage and if you wish, combine your working accounts (day to day transactions) and loan accounts into one.

 

As you are utilising a line of credit, even when you’ve paid off your loan, it will keep on working as a flexible credit limit that you can use to take advantage of any other opportunities that might arise.

 

Commercial bill

Commercial Bills can be an excellent answer when you need a significant injection of cash – above $100,000. Normal terms are from seven to 180 days with a variable or fixed interest rate. There are two types of bills – Floating Rate Bills & Fixed Rate Bills. With Floating rates, the drawdown rate and the term to maturity of the bill are agreed at the time of the drawdown. The interest rate applicable is determined by the term of the bill. If the period is extended or rolled over, the interest rate may vary. With Fixed rate bills, the drawdown rate is fixed for the term of the facility and your interest rate remains constant for the term of the facility, which may include several rollovers. With variable rate bills, the interest rate is fixed for each period.

 

Borrowing via a Commercial Bill facility offers the flexibility to adjust the principal amount borrowed each rollover (or interest payment period) in line with business cash flow requirements, within a specified limit.

 

Low doc/no doc loans

If you have difficulty showing documentation to demonstrate your income, or you have limited business financials, a low document or no document loan might be a solution for you. Many self employed business operators have difficulty substantiating income or producing full records of their income. Interest rate can be around the standard variable interest rate depending on the loan-to-value ratio, and in some instances these rates will step down after a period of on-time repayments.

With appropriate security, you can now get loans: 

·         From $50,000 to more than $2,000,000

·         Up to 95% of the approved value of the residential security property

·         If you are a business of less than 12 months

·         To apply funds for business expansion and investment

·         With or without LMI (Lender’s Mortgage Insurance)

Typically, you will be required to complete a simple income declaration form to accompany the loan application. No tax returns or financial reports are usually required.