Starting a business takes money, often lots of it, not only to finance day–to-day operations but also to cover expected growth.
Luckily, we are spoilt for choice in Australia as there are plenty of banks, building societies and credit unions in the market that offer loans to small business. However, the past few years have been tough for business and there have been widespread reports of small business struggling to obtain finance and when they do, they are paying a much higher margin relative to home lending.
With this is mind, it?s important to compare banking products and ensure you are getting the best deal. The first place to start is with the bank you currently use. Ask them for a better deal. You may be surprised what you save just by asking.
Here are 5 key things to know about successful business banking:
- Security matters
One of the biggest factors determining what interest rate you actually pay is the security you offer. With credit tightening up and loan defaults increasing, the better security you have the more comfortable lenders will be in releasing funds to you at a lower interest rate. Residential security is generally regarded at the best as lenders know you will be a little more careful when your own bricks and mortar are on the line.
- Keep risk margins down
Most lenders will publish a base rate and then add a risk margin to arrive at the final interest rate. This is because past experience has dictated the risks involved in business lending are far more complex than home loans. To keep your risk margin, and therefore your costs, to a minimum, think the way a lender does. Better security, a solid business model, proven cashflow history and good management and industry experience will earn you top marks.
- Term loans even out payments
Big funding gaps are often filled by term loans. These are similar to home loans where a set amount of money is borrowed over a set timeframe and repaid in equal, regular repayments.
- Overdrafts can be useful
An overdraft is really like a big credit card. You have a set limit and can draw down on as much or as little as required. Interest is only incurred on the amount of your limit that is actually used. Thus, overdrafts are a useful tool to fill irregular or seasonal gaps in cashflow. Ongoing fees are often paid on the total limit and there can be an unused limit fee, so only ask for what you need!
- Save a bundle by packaging
Packaging your banking products together is a popular way to save in the home loan space and packages are increasingly being offered for small business. Lenders have been customising deals and offering discounts of multiple products for years, however there are now many off-the-shelf packages available for small business. These can be a great way to save money and keep banking simple for those who don?t have the time or the size to negotiate hard for the best deal.