Short-term business funding can give your company the boost it needs. Still, there are a few things that you need to consider before applying.
Any business can become cash-crunched at some point. Whether it’s an issue or an opportunity, the business needs a quick cash injection. Bank loans are a traditional option for small business owners in New Zealand, alongside alternative lending platforms. When this happens, small business loans can be the perfect solution. Some business owners may also consider a personal loan or personal loans for business purposes, depending on their credit and needs.
They can get you the working capital you need to keep everything running smoothly. If you play your cards right, this can be a smart business move. Investors can also be a source of funding for New Zealand small businesses when traditional loans are not available.
However, many business owners rush into this decision before having all the information. For New Zealand businesses, eligibility requirements often include being a Zealand citizen or permanent resident, and only qualifying businesses can access certain loan products. Zealand small businesses have specific criteria for loan eligibility, such as business size, turnover, and documentation. To make sure this doesn’t happen, keep reading to learn about when short-term loans make sense.
What Is a Small Business Loan?
Short-term business funding lets you take out a smaller amount of money for an urgent matter. In general, the repayment period is between 3 months and a year.
With the right lender, the repayment can be flexible, so you can work out a schedule that fits your business needs. The application process is straightforward, often involving a simple application form that you can complete to apply online. The loans are highly versatile, as you can use the money for nearly anything. They don’t come with restrictions, which is part of their appeal. There are various lending options available, including secured loan, unsecured business loan, and line of credit, each with different requirements and benefits. Borrowed funds can be used for a variety of business purposes, helping to unlock business potential and support growth.
They can get you the working capital you need to keep everything running smoothly. Businesses can borrow different amounts, from small sums to larger loans for significant investments. Timely payments ensure that staff and suppliers are paid, supporting smooth business operations.
There are many benefits to taking out a short-term business loan. These loans can help access funds quickly to cover urgent business purposes, such as paying suppliers or staff. And yet, many business owners are hesitant about it. Even when the right loan can truly make or break your business. Fees apply to most business loans, and it is important to review all costs before borrowing.
If you want to maximise the benefits of this form of financing while eliminating the risks, you need to take a few things into account. Understanding the interest rate, whether it is a fixed rate or variable, is crucial for planning your repayment plan and managing costs. Lenders will assess your credit and financial data to determine eligibility and interest rates.
Some loans require assets as collateral (secured loan), while others do not (unsecured business loan), and asset finance is available for purchasing equipment or vehicles.
Loan Options
When it comes to business loans in New Zealand, small business owners have a variety of options to suit different needs and financial situations. Whether you’re looking to boost cash flow, invest in business growth, or cover unexpected expenses, choosing the right type of loan is crucial.
Secured loans are a common choice for businesses with valuable assets, such as equipment or property, to offer as collateral. These loans often come with lower interest rates, making them attractive for those who meet the eligibility criteria set by banks and traditional lenders. However, the application process can be more rigorous, and approval may take longer.
On the other hand, unsecured business loans provide fast access to funds without the need for collateral. This makes them ideal for small businesses that may not have significant assets but need quick business funding. Lenders like Prospa offer unsecured small business loans with competitive interest rates and flexible repayment options, helping business owners manage their cash flow more effectively. While unsecured loans typically have higher interest rates than secured loans, they offer greater flexibility and faster approval times.
It’s important to compare different lenders, including banks and finance companies, to find the best fit for your business needs. Pay close attention to interest rates, fees, and the total cost of borrowing. By understanding your options and the associated costs, you can make an informed decision that supports your business’s long-term success.
1. Purpose
The worst thing that you can do is to take out a loan just because. You need to think carefully about what it is that you’re trying to achieve with the money. Going into debt without a valid reason can do a lot more harm than good, so make sure that you’ll be using the money for something worthwhile that makes business sense.
Here are some of the situations in which a short-term business loan can be a good idea:
- Business moving
If your business relies on vehicles or equipment to stay operational, a loan can help finance the purchase or upgrade of trucks, vans, or other essential assets. This ensures your business keeps moving and remains productive.
Discounted inventory purchase
Every once in a while, you’ll stumble upon a great deal with a vendor. Buying inventory at a discounted price can have a butterfly effect that results in significant business growth. You wouldn’t want to miss such opportunities due to a lack of cash.
Emergency repairs
Sometimes, loans are a necessity. If your critical equipment breaks down, you might not be able to keep the business running. This can create bottlenecks as you figure out how to resolve the problem. A much more convenient way of dealing with this is to finance repairs with short-term business funding. Short-term business loans can also help cover expenses when expected income is delayed, providing a financial bridge until your income resumes and ensuring the business remains operational.
Seasonal cash injection
If you run a seasonal business, you can established a pattern of revenue and expenses throughout the year. In some cases, you’ll need more cash than you have on hand to cover your peak periods, such as buying more stock and more aggressive advertising. A loan can make sure that your business has everything it needs to make the most of the best time of the year.
Upfront project costs
Sometimes, you’ll have to invest in a project that you can’t afford. If you’re certain that the project will turn out well, taking out a loan to finance it can be a good idea. Property developers and large corporates may also use flexible loan facilities to manage cash flow fluctuations during development projects, giving them greater control over financial management.
Debt consolidation
Taking out one loan to get out of multiple debts can often result in lower interest costs. The only exception is if this becomes a habit, which can significantly harm your business.
These are the main reasons that justify taking out a loan. However, there are a few other things that you need to consider before you do it.
2. Cash Flow
Cash flow is the lifeblood of a business. It’s much better to have a smaller amount of money available than relying on the money that you still don’t have.
As much as a short-term business loan can be quite helpful, it can put a strain on your cash flow. Before you get a loan, you need to be 100% certain that your revenue and cash flow can withstand this pressure. Failing to do this can hurt your everyday operations or result in defaults.
Think about the operational costs that you’ll have to cover during the repayment period. See if you can count on a stable revenue stream that you can use to honour the repayment schedule. If you’re not certain that you’ll be able to meet it, it might be better to wait a bit longer.
3. Early Repayment
If you need some quick cash that you know you can pay back in a few months, you should feel confident about taking out a loan. This is even better if the loan allows you to repay in full early and save on the interest.
Just be mindful of getting drawn into a vicious debt cycle. Many business owners use a new loan to repay the previous one, then another and another into infinity.
Even if your loan allows for early repayment, don’t do it through another loan. Only when you know that you can give the money out of your own pocket is it safe to think about early repayment.
In addition, remember that this doesn’t let you avoid all the interest but only part of it. It’s best to contact the lender to figure out the lump sum.
Working with a Lender
Navigating the business lending landscape starts with understanding your own business needs and researching the available borrowing options. Before you apply for a loan, take time to assess how much funding you require and what type of loan best aligns with your business goals and financial situation.
A business lending specialist can be an invaluable resource during this process. They can help you understand the lending criteria, eligibility requirements, and guide you through the application process. For example, lenders like MTF Finance offer tailored business lending solutions and are known for their fast turnaround times, sometimes approving loans within a day.
To improve your chances of approval, prepare a comprehensive business plan and gather all relevant financial data, such as cash flow statements and recent tax returns. Lenders will review this information to assess your ability to repay the loan and determine the appropriate interest rates and fees. Make sure you fully understand the terms of the loan agreement, including repayment schedules and any additional fees that may apply.
By working closely with a lender and being well-prepared, you can secure the right finance for your business and set yourself up for future success.
Business Planning
A strong business plan is the foundation for securing a small business loan and achieving your business goals. Lenders want to see that you have a clear strategy for growth, a solid understanding of your market, and realistic financial projections. Your business plan should outline how you intend to use the loan funds, whether it’s for a marketing campaign, purchasing inventory, or investing in new equipment.
When preparing your plan, pay special attention to your cash flow forecasts and how the loan repayments will fit into your overall budget. For instance, if you’re applying for a term loan to fund a marketing campaign, detail the campaign’s objectives, expected costs, and the anticipated return on investment. This level of detail not only strengthens your loan application but also helps you stay focused on your business objectives.
Regularly reviewing and updating your business plan ensures you remain adaptable in a changing market and can make informed decisions as your business evolves. A well-prepared plan demonstrates to lenders that you’re serious about your business and capable of managing finance responsibly, increasing your chances of securing the funding you need.
Does Short-Term Business Funding Make Sense for You?
Now that you’ve seen some of the main factors to take into consideration before taking out a loan, you can think about whether this would be the right move.
Obviously, the first thing that you’ll want to make sure is having a valid reason for getting the loan. Then think about whether you’ll be able to repay the loan without hurting your operations, and you’ll want to develop a contingency plan for the worst-case scenario.
If you’re ready for a loan, Unsecured Finance New Zealand might be able to approve it in no more than a day. Click here to learn more about how you can get the cash you need. And if you want to do it right away, fill out this form and apply for a loan in less than five minutes. You can conveniently apply online to quickly access business funding.
