Most Australians know mortgage brokers can help them find a home loan that meets their requirements. What a lot of people don’t realise is brokers can also help small business owners secure the right commercial finance for their business too.
Many small business owners use the equity in their homes to cover their start-up and expansion costs. It’s often the only option in the early days but, as your business becomes established, external funding can help you take advantage of expansion opportunities.
Commercial or business finance refers to a range of financial products and loans designed for businesses.
Growing businesses can seek funding for several purposes, from acquiring and fitting out new premises to taking on staff and maintaining cash flow. The purpose of the additional funds generally determines the type of commercial finance product you choose to access.
Common forms of commercial finance used by companies to acquire assets and equipment include asset finance and chattel mortgages:
- Asset finance can help businesses buy the equipment they need to expand – think machinery or computer systems and the like. It’s a good option for businesses that have the cash flow to make regular repayments but don’t have the capital to outlay for large items of plant or equipment upfront.
- Chattel mortgages can be used to purchase movable assets, such as motor vehicles, boats and trailers, and pay them off over a period of typically one to seven years. The borrowings costs of Chattel mortgages are generally tax deductible and if you’re registered for GST you may be able to claim input credits for GST included in the original purchase price of the asset.
Other growing businesses look to borrow money to help them maintain a healthy cash flow rather than to acquire premises or equipment, and this is known as cash flow financing:
- Cash flow financing is designed to help businesses avoid ‘cash flow crunches’ – an expression used to describe a situation where outgoings are greater than incomings. A cash flow crunch can be a symptom of a business growing too quickly and may occur if your business receives several large orders and there’s a delay between your supplying the goods or services and customers paying you for them.
Poor cash flow can prevent a business from expanding or result in its being unable to cover its bills on time or pay staff. Unfortunately, it’s a familiar circumstance for small business owners across the country.
Two thirds of Australia’s small businesses encounter late or unpaid invoices, according to research from cloud accounting software vendor Xero. A quarter would struggle to survive a month if all their outstanding invoices remained unpaid and 15 per cent would be unable to pay their staff and meet their superannuation obligations.
Invoice financing can help improve your cash flow by providing your business with access to funds before your customers pay their bills:
- Invoice discounting, for example, can allow your business to access a proportion of its unpaid debtors through a lender. A typical arrangement might see you receive up to 80 per cent of the value of an invoice within 24 hours of billing a customer and the balance, minus fees, when the account is paid.
- Invoice factoring transfers responsibility for chasing your business’s debts to a lender in return for a percentage of their value.
So, how can a mortgage broker help?
Understanding the forms of commercial finance that are available, evaluating which best meet your business needs and securing funding at competitive rates isn’t easy. It can be time-consuming and, if you’re running a business that’s growing fast, time is likely to be in short supply.
And that’s where a mortgage broker can help. They can assist you with identifying the type of finance that’s best suited to your circumstances and give you options on lenders and products
The ideal solution for your enterprise may comprise a combination of lending facilities. A broker can work with you to tailor a financing solution that protects your cash flow and allows your business to take advantage of expansion opportunities. Make the time to talk to yours, to see how commercial finance can help you take your business to the next stage.