Small business owners know all too well that the unpredictable nature of the industry can sometimes mean that quick access to cash flow is needed. MFAA Accredited Broker, Liz Barter presents some of the options available to you when you’re faced with a cash-shortage.
Solution #1: equipment finance
For many small businesses, especially those in the hospitality industry, income and cash flow are heavily reliant on functioning equipment. So for restaurant owners who find their delivery truck has suddenly decided to call it quits, turning to equipment finance could be the best solution.
“Supported by most major and subsidiary lenders, rates are offered competitively at around five to eight per cent. Where a chattel mortgage, a mortgage on a commercial vehicle, is elected, borrowers own the asset from day one and can claim GST payments upfront, which enables greater cash flow within the business as well as interest and depreciation add backs,” says Liz Barter, Managing Lender at Finestream Capital. “Ultimately, I would recommend this solution as they are safe, structured and can have tax benefits associated with ownerships.”
Solution #2: unsecured business cash loan
A fast and modern alternative to traditional banking methods, an unsecured business cash loan doesn’t require you to use a business or personal asset as security. It also has the advantage of speed with 90 per cent of their loans being approved and funded within 24 hours, advises Barter.
Not suited for start-ups, this option has stricter guidelines as approval is based on how long your business has existed, how long you’ve been at your current address, and on monthly sales. So if you find that you may fall short in covering rent for your company’s premises, this could be the solution most convenient for you.
Solution #3: equity release
If you have an existing property, you can cash in on the equity of this premises to secure additional funds. Barter advises that with planning and an understanding of overall objectives, this can be an excellent solution as interest rates are much lower than commercial rates.
“This facility will give you certainty and reduce the overall minimum repayment. However, the risk is that your home is on the line, so there are important things that must be considered, the business plan, the equity available and an alternative plan if your business can no longer service the facility.”
Solution #4: payday loan
For any business owner, especially freelancers, who need to cover everyday costs and expenses but are still waiting for a cheque to clear, taking out a payday loan may seem the ideal solution. They are easy to establish, with approval generally settled within 24 hours, are available in small amounts, and even those with bad credit histories can apply.
However, Barter recommends to only consider this as an emergency or last-minute short-term solution. “These loans can ensure business maintains productivity and reduce downtime, which often overrides the additional interest costs. Payday rates are high, usually around 20 per cent of the principal loan amount, and it’s vital that a business has good cash flow projections to ensure they can meet the repayments.”
Solution #5: merchant cash advance
A fast transaction that’s designed to match your cash flow, a merchant cash advance is where a lender essentially purchases future transactions of the business and provides a lump sum payment in exchange for a percentage of future sales.
“This should only be considered as a short-term solution as they are more expensive than traditional loans,” says Barter. “Not suited for seasonal businesses, or those that experiences peaks and troughs, the amount advanced usually spans three months which may mean that it may not suffice. ”
If you find yourself in a situation where your business would benefit from quick access to cash flow, it is always recommended you speak with your mortgage broker before selecting which option to go with. They can advise you on the best route to take to ensure your business will not experience a cash-shortage predicament again.