There are other Types of business loans available in Australia apart from the Secure and Unsecure Business loans.
Whether you are looking to cover a financial shortcoming in your business or you are looking to buy new set of equipment or expand your existing business, there is a type of loan waiting for you.
Over 45% of Australian small businesses use one type of loan facility or another to foster the growth, sustenance, and expansion of their businesses and you should not be left in the dark – if you will be honest enough to pay back.
In this article, we will look at 5 other Types of business loans available in Australia, stating their advantages and disadvantages, that way, we would guide you properly in your decision making.
We would also discuss how you can best utilize whatever kind of business loan you choose to go for.
Let us quickly get right to it, shall we?
1. Merchant Cash Advance
A Merchant Cash Advance (MCA) will definitely be of a great help to you and your business if you do not have enough cash flow to run your business with.
This works like the simple borrowing you already know about in that a lender gives you a good sum of money upfront and it is yours to run your business with as you see fit.
Repayment works in a simple way where you just repay the amount (plus any agreed percentage) to the lender through your daily credit card sales.
There is no usage restrictions with it as you can either use it to finance business expansion or even equipment purchase.
Pros & Cons of Merchant Cash Advance Loans
- You can easily apply for MCA online from your comfort zone
- Loan can be available for you within days
- Repayments works only as agreed [in percentage sales] with the lender
- This is only available to businesses that has daily credit card sales
- The annual percentage rate (APR) can be higher than 60%
- This loan model is not regulated by government agencies and policies
What can you use Merchant Cash Advance Loan For?
You can use it for anything that either grows or stabilizes your business. As stated earlier, you can either refresh your inventory with it, expand your business, or even channel it into marketing and lead generation for your small business.
If you are running a grocery store in Sydney and need a little fund to refresh your inventory, reaching out for a MCA is not going to be a bad idea.
2. Purchase Order Funding
A Purchase Order Funding is helpful for your business when it experiences a high number of order without the funds to fulfill them.
This is slightly different from Invoice Financing like we will discuss in that you don’t need an invoice to secure the loan.
All that is required is that you reach out to a lender with a purchase order in hand just so it can be confirmed that you indeed have more orders than your finances can fulfill.
The tricky part is that once the lender finances the order, your client will pay the funds to the lender who takes their cut and refunds you what is rightfully yours.
Pros & Cons of Purchase Order Funding
- Helps new small businesses fulfill large orders instead of passing off deals for lack of funds
- All you need is an existing purchase order to secure this type of loan
- Your order must have a specific profit threshold to qualify for a Purchase Order Funding
- Purchase Order Funding only works with manufactured goods and not for service-based businesses.
What can you use Purchase Order Funding For?
This loan helps you to carefully bridge the gap that may arise between the supply and demand of your products.
You can also channel into the business’ working capital or even staff commitment. Lenders just need to be sure that there is a [tangible] product they can hold on to should you default.
3. Invoice Finance/Factoring
This works with a slightly different principle from some of the other Types of business loan available in Australia.
Here, the business will sell the invoices they are having a hard time collecting to a lender also known as a “Factor”.
These factors now take the responsibility of collecting on the invoices through whatever means they desire.
They however, will not pay you 100% of the invoice amount but can even pay you up to 75% (or more depending on your negotiating power).
This will help you if you have so much unpaid invoices but need an urgent cash to sustain your business; this means that Invoice Finance/Factoring gives you a way to pay your business expenses before your customers redeem their invoices.
Pros & Cons of Invoice Finance/Factor
- Gives you an immediate cash relief that helps sustain your business
- Takes the stress of collecting invoices away from you
- Helps you cover cash flow issues always.
- You dot receive the full invoice (or debt) amount
- Can be more expensive than an outright loan
- Has the tendency of spoiling your relationship with your clients since you are not in control of how the Factor collects the money from your debtors.
What can you use Invoice Finance/Factor For?
If you have ever run into an instant need for cash to hold down your business and you only have tons of invoices, then you will understand how useful this can be.
The good thing about it is that you can gain access to fund almost instantly as against other loans that may take a few days.
You should, however, use this as a last resort in cases you cannot wait for a loan request to pull through just so that you can get you full money back from debtors [with time] and also maintain profitable business relationships with your customers.
4. Equipment Finance
Just like the name, Equipment Finance is a specific kind of loan that helps you to upgrade your existing equipment or purchase a new piece of equipment.
Equipment finance is one of the other Types of business loans available in Australia that is specifically meant to help businesses make equipment purchases without needing a conventional loan or waiting to generate funds to buy one.
Pros & Cons of Invoice Finance/Factor
- Encourages a very flexible repayment plan
- Works faster than securing a conventional (or unsecure) loan
- Can sometimes work with small or no deposit terms
- You cannot sell the piece of equipment until loan is repaid in full
- Always comes with a fixed contract that carries a fee for early termination
- Your business must have a strong financial track record to qualify
5. Business Credit Card
Your business just like you, can have a credit card that facilitates smaller expenditure in the form of a loan.
A Business Credit Card is one of the other Types of business loans available in Australia that is gaining wild popularity. It has different rewards and bonuses when compared to a personal credit card.
A business credit card usually come with a higher credit limit based on your business credit score – a credit score shows how healthy the financial state of your business is.
Its interest rates vary from lender to lender which means that you should look out for the lender with the best rates.
Pros & Cons of Business Credit Card
- Simply given to make daily purchases for the business
- A good source of emergency cash flow for your business
- Some lenders offer cards with interest free periods
- May probably be linked to your personal finances
- Fees and charges are likely to add up even when not in use
Whatever loan option you go for, always remember that the sole purpose of a business loan is to grow and expand your business and must be attended to as such.
There would be the urge to misuse funds but do not let it ruin your business.
These business loans available in Australia is also available in other countries but conditions and rates may differ.
Do you need a small business loan? Which among them will you go for?