A business can need $100,000 for completely different reasons.
One business may repeatedly need cash for wages and supplier bills while waiting for customers to pay.
Another may have a specific $100,000 ATO liability it wants to clear.
Another might need $100,000 to open a new location.
The amount is the same.
The finance requirement isn’t.
This is why choosing business finance should start with what the money is actually going to do.
When the cash requirement keeps coming back
A business overdraft or other revolving working capital facility can suit situations where money moves in and out of the business regularly.
For example, a business may need to fund:
wages before customers pay
supplier invoices
stock purchases
temporary staff
unexpected operating costs
deposits for upcoming work
seasonal cash flow requirements
With a revolving facility, the business can generally draw funds when required, repay the balance as cash returns to the business and potentially draw again within the available limit.
The exact way the facility operates depends on the lender.
Interest calculations, line fees, establishment fees and repayment requirements can all differ, so the total structure needs to be reviewed rather than simply looking at the headline interest rate.
For a business that regularly moves between having surplus cash and needing additional cash, having access to an approved limit may be more useful than arranging a completely new loan every time a gap appears.
What if the business only needs the money once?
That is a different problem.
A business may need a defined amount for:
an ATO liability
purchasing another business
opening a new location
buying out another shareholder or director
restructuring a particular business obligation
another substantial one-off expense
In those situations, the intention may be to borrow the amount once and progressively repay it rather than repeatedly redraw the funds.
A term loan may therefore be more appropriate than a revolving overdraft.
That doesn’t mean a term loan will always be the right answer. It means the purpose of the borrowing should influence the structure being considered.
ATO debt is a good example
Suppose a business owes the ATO $180,000.
The owner may want that liability dealt with and then progressively repaid over an agreed finance term.
That is fundamentally different from a business that regularly needs $180,000 available to buy stock every few months.
The lender assessment will also involve more than simply asking how much the ATO is owed.
Depending on the lender, relevant information can include the current position with the ATO, business turnover, cash flow, existing debts and the business’s ability to meet the proposed repayments.
If your business has an ATO debt that is affecting cash flow, tell Thrive Broking what is owed, what other finance the business is already carrying and what the business is generating now. That gives us something useful to assess rather than starting with a generic request for “business finance”.
Bank statements can tell a lender a lot
Different lenders require different levels of financial information.
Some business lenders may rely heavily on recent business bank statements for particular products.
Others may require financial statements, tax returns, BAS information or additional documentation.
The lender featured in the webinar that prompted this article, for example, assesses certain facilities using six months of business bank statements and may obtain financial information for larger or more complex applications.
That is that lender’s policy, not a rule that applies across the market.
The broader point is that lenders are often trying to understand what is actually happening inside the business.
They want to see income coming through the accounts, existing commitments being met and whether the proposed finance can reasonably be supported.
Turnover matters, but turnover isn’t the whole story
A business with significant revenue may have more borrowing capacity than a smaller business, but turnover by itself doesn’t determine whether an application will be approved.
A broker also needs to understand:
existing loan repayments
tax obligations
how consistently revenue is received
what the new finance is being used for
whether the funding creates additional income or simply replaces another liability
current cash flow pressure
trading history
the lender’s appetite for the industry and transaction
Two businesses with the same annual turnover can have very different finance positions.
Start with the problem, not the product
Instead of asking:
“Can I get a business loan?”
A more useful conversation is:
“I need $120,000 because I’ve won a contract and need to fund wages and materials for the next eight weeks.”
Or:
“I have an ATO liability of $150,000 and want to restructure it into a repayment I can manage from current business cash flow.”
Or:
“I need $250,000 to open another site and this is exactly what the money will be used for.”
That gives Thrive Broking far more information to work with.
We can then consider whether a business overdraft, working capital facility, term loan, debtor finance or another business finance structure better matches the problem.
Thrive Broking provides business finance solutions across Australia and has around 30 years of finance experience.
If there is an immediate cash flow problem, tax liability, supplier payment or business opportunity you need to fund, tell us the amount, the purpose and when you need it.
That’s where the finance conversation should start.