Information about Business Loans
Need help with business loans?
Business loans come in all sorts of formats depending on what your needs are but regardless of what you are looking for, there is usually an answer as there are many different finance options available covering a huge range of needs.
This page sets out broad information on the more popular types of business loans but is by no means an exhaustive list so if you find that the type of finance that you require is not on this list, then it certainly doesn’t mean that it doesn’t exist.
Car & Equipment Finance
Most businesses need motor vehicles or other equipment for use in their business and one of the best ways to finance this is through the use of Chattel Mortgages or Leases.
The list of equipment that can be financed through either a Chattel Mortgage or Lease is extensive and can include the following:
- Passenger cars for personal and business use;
- Light and heavy commercial vehicles;
- Earthmoving and construction equipment;
- Manufacturing and industrial plant and machinery;
- Printing presses and graphic technology;
- New computers and office equipment;
- Medical and Dental Equipment;
- Agricultural equipment and machinery;
- Above ground mining vehicles and equipment
There are different types of finance available for motor vehicles and equipment including the following:
A Chattel Mortgage is a commercial finance product where the customer takes ownership of the goods (chattel) at the time of purchase. In simple terms, the amount of interest included in the repayment is a tax deduction along with depreciation of the equipment.
A “balloon” or “residual” is an amount that remains owing once the term of the finance expires. This is optional although it does has the effect of keeping repayments lower.
Car or Finance Lease
The financier purchases the vehicle on behalf of the customer, who then leases the vehicle back from the financier and pays a fixed monthly lease rental for the term of the lease. At the end of the finance, you can either pay the residual value (final instalment) on the finance and take full ownership of the car, trade it in or re-finance the residual over a further term.
The whole repayment is tax deductible although you cannot claim the depreciation of the item as a tax deduction. Again, the residual is optional.
Business often require other types of finance for the running of their business. Whatever your needs, it is important that you structure the loan properly.
These are usually needed for buying a new business. They would generally require security by way of a mortgage over a property.
Again, these are usually over a 15 year term with up to 5 years Interest Only and can be fixed or variable.
There are some specialised types of businesses such as newsagencies, management rights and real estate rent rolls where security can be taken over the business itself.
If you are looking at buying a Franchised business, many lenders will lend up to 60% of the value of the business. The remaining funds of 40% can come from a mortgage over your own home or even cash. Lenders rely on the reputation and history of the Franchise for this type of loan but not all Franchises are acceptable.
Overdrafts are often required to help with the cash flow of your business. Put simply, they enable you to be able to overdraw your business working account to an approved amount.
These can be secured by a mortgage over your property however small overdrafts can sometimes be obtained without any security.
Debtor finance can be a great alternative or in addition to an Overdraft to help with cashflow. The lender will lend to you 60% of your outstanding invoices and the balance is paid to you once the invoice is paid. This type of finance is for larger invoice amounts as it would not be economical for smaller accounts.
Buying a commercial property – be it a shop, factory or an industrial unit – requires a Commercial property loan. These properties can be used for your own business to operate from or simply as an investment property.
They can also be purchased in your own name, the name of your company or even in a Self Managed Super Fund with one advantage of this being that Commercial properties owned by a Self Managed Super Fund can be occupied by your own business.
Commercial loans generally attract higher interest rates and fees and charges than a home loan and lenders will also require a higher deposit, usually at least 30%.
Just like a home loan, the interest rates can be variable or fixed with terms of 15 to 25 years. Interest Only is usually only available for up to 5 years.