Introduction to Business Loans
Business loans are a cornerstone of modern business financing, offering essential support for both small businesses and larger enterprises. Whether you’re just starting out or looking to expand, having access to the right business loans can make all the difference in achieving your business growth objectives. From managing cash flow during slow periods to investing in new opportunities, loans provide the flexibility and capital businesses need to thrive. Business lending encompasses a wide range of financial products and services designed specifically for business owners seeking capital, including tailored loan options and quick approval processes.
Understanding the different types of business loans available—such as unsecured business loans and secured loans—can help you navigate the complex world of business financing. Each loan type comes with its own set of interest rates, repayment terms, and lending options, so it’s important to choose one that fits your unique financial situation. Having a dedicated business bank account is essential for managing cash flow and is often required to facilitate the loan application process and access financial products from banks and lenders. Fixed interest rates offer predictability, while variable interest rates can provide flexibility, depending on market conditions. By exploring your options and matching them to your business needs, you can ensure your business is well-positioned for success, no matter what challenges or opportunities come your way.
When Every Bit of Capital Counts
In the fast-paced world of business, having access to capital can be the key to staying ahead of the competition. A well-chosen business loan can provide the funds you need to purchase new equipment, expand your operations, or simply manage cash flow during challenging times. For small businesses in particular, the right financing can open doors to growth and help strengthen your overall financial position.
In addition to traditional loans, business funding offers another way for businesses to access capital. Innovative business funding options, such as using provisional tax as collateral, are becoming popular for NZ businesses seeking convenient solutions without hidden fees.
When considering a business loan, it’s important to weigh your options carefully. From unsecured business loans that offer quick access to funds without collateral, to secured loans that may come with lower interest rates, each option has its own advantages and considerations. Understanding the interest rates, fees, and repayment terms associated with each loan type will help you make informed decisions that support your business goals.
By taking the time to explore different business loans and aligning your choice with your business needs, you can ensure that every dollar borrowed works towards building a stronger, more resilient business. Whether you’re a small business owner looking for your first loan or an established company seeking new financing, making smart choices about your business loans is essential for long-term success.
When you’re running a small business, every bit of capital counts. One of the ways you can save money is by picking the right type of loan.
Do you know what your options are with secured and unsecured business loans? If you don’t, you’re leaving a lot of money on the table by choosing less-than-ideal financial products. Many banks have strict lending criteria, making it challenging for new business owners to access a small business loan. To qualify for most business loans, applicants typically need to be a New Zealand citizen or permanent resident.
There are different loans based on the , loan amount, and a lot of other criteria. Knowing the differences will help you find the perfect one for you.
What you need to consider first is how you’ll be using the loan. This is where people tend to make a mistake.
A loan gets you cash, certainly, but you have options based on the purpose of that cash. A loan used to buy equipment isn’t the same as the one you’ll use to cover payroll. Even though they’re both loans, their terms and conditions will be very different. Small business loans are designed to help qualifying businesses fund operations or expansion. Secured business loans require collateral, such as property or equipment, and often offer lower interest rates compared to unsecured loans. Some business loans also offer repayment periods of up to five years, providing flexibility for business owners.
Before you apply for a business loan, take a look at these options and choose the right fit. You can now apply online for many business loans, streamlining the application process for small businesses and new business owners.
Invoice Financing
Invoice financing is a great option for businesses that tend to have long waiting periods for receivables. They’re essentially a way to leverage your invoices to increase immediate cash flow.
This is also known as factoring. In short, you sell any amount of your unpaid invoices to business lenders in exchange for cash on hand. Lenders may require recent bank statements and other financial data to assess your business’s finances before approving invoice financing.
Invoice financing is a great option for both lenders and borrowers. Your company history gives them a good idea of what to expect from your customers, making it relatively low-risk.
For Commonwealth Capital, LLC, it was a great way to hold on to a client.
When one of their clients started to run into a little trouble. Commonwealth reduced their line of credit, making a bad situation worse.
To try to work something out, they met with the client and toured their facility. After assessing the situation, they provided $350,000 to the client through invoice factoring.
That extra injection combined with the line of credit did the trick. After 18 months, the client got back on their feet and re-established their line of credit entirely.
Had it not been for the extra financing, the client might have gone out of business. And Commonwealth might have lost a client.
Equipment Finance
Another favourable but specific type of loan is equipment financing. The loan application includes the equipment that the borrower needs to buy.
This kind of loan typically doesn’t require additional collateral, as the asset being purchased serves as security for the loan. This is similar to a car loan, where the car itself is used as collateral. The product issuer, that is, the lender effectively owns the equipment that the loan pays for. When you repay the loan, the equipment becomes your sole property. Business assets or other property can also be used as collateral for secured loans, depending on the lender’s requirements.
This is an excellent choice for new businesses that don’t meet lending criteria for traditional loans. The interest rates are relatively low compared to other options and the application processes tend to be quick.
Equipment financing saved the day for this medical startup.
HourGlass Technologies had a tough decision to make. Either outsource the manufacture of their flagship product or find financing to do it themselves.
They needed an expensive laser to manufacture it in-house. Luckily, they established a relationship with a venture funding partner.
After several meetings and discussions, they agreed on terms for an equipment loan. HourGlass was able to go into production shortly with the new equipment.
That’s the power of finding the right business lenders and the right loan. Getting financing as a new and untested company is almost impossible otherwise. Using business assets as security can help new businesses access larger loan amounts.
Commercial Bill of Exchange
This is a very special kind of financing option. It’s effectively a variable rate instrument. It’s basically an order to pay a sum of money at a specified date. A lot like a cheque.
It differs from a cheque in that it usually has other terms attached. Some loans structured as commercial bills of exchange may offer interest only repayments for an initial period, after which repayments shift to cover more principal and less interest as the loan progresses. Over the repayment period, this means that early payments primarily cover interest costs, while later payments reduce the principal balance.
It’s also not very common outside of international trade.
This option can have very low interest rates. But it usually requires a well-established business with good lending criteria. When considering this type of financing, it is important to evaluate the total interest and interest costs that will accrue over the repayment period. So, it’s rarely made available for SMEs.
Traditional Business Loan
Truth be told, one of the best options for low-interest financing is a simple business loan. And there’s some general advice you should follow when getting one.
This one is rarely an unsecured loan, so make sure you’ve got the collateral for it. Also, it’s probably not tailor-made for your business. Typically, they have minimum borrowing amounts. Secured loans often come with a lower interest rate, while unsecured loans may have higher interest rates due to increased risk.
The biggest problem with these loans is the application process. It takes a long time. An application fee and other fees may apply, and these should be reviewed in the loan agreement.
Now, you can certainly opt for unsecured business loans. Those protect your assets and can take less time to get. But that’s going to impact the interest rate.
If you don’t want to tie your assets to a loan, unsecured business loans are a godsend. They can provide a much-needed cash injection at just the right time. Fixed rate or fixed interest rate options can provide certainty in loan repayments, making it easier to budget. Some loans allow for early repayment, though fees may apply, so always check the loan agreement for details.
One bar owner found that out to his great delight.
John’s Crow Bar had developed a good reputation within 18 months of opening. But it was time to put the space to better use.
John had already used a secured loan and hesitated to put more of his assets into loans. Instead, he approached a lender for an unsecured business loan.
The process was much faster than his previous secured loan. The capital was available just in time to expand and renovate the bar.
Traditional business loans can also be used for debt consolidation, helping businesses manage multiple repayments more efficiently.
Maybe an unsecured loan is right for you too. Think about what you’re using as security before you commit to a traditional loan.
Look Before You Borrow
You can’t always predict when you’ll need some extra capital for your business. But if you become familiar with your options, you’ll always make the right choice.
When you’re thinking about getting a loan, think about the purpose and your resources. What do you need the loan for and what basis can you provide for it? Some business owners may consider a personal loan, but should be aware that personal assets could be at risk if repayments are missed.
Even if you need a loan the next business day, you can find someone that will provide it. Unsecured loans can be a fast option, but may come with higher interest costs and shorter repayment periods. But the terms are going to ruin you, so stay on top of the game.
If you’re thinking about getting a loan, let us help you find the right one. At Unsecured Finance New Zealand, we can walk you through your options. You can apply in only five minutes using our online application form.
Loans can be used to support working capital needs or keep your business moving, ensuring you have the funds to cover day-to-day operations and unexpected expenses. Some alternative funding options, such as invoice financing or credit cards, can help businesses get paid faster without taking on traditional debt.
Navigating the Application Process
Applying for a business loan can feel overwhelming, especially for small business owners who are navigating the process for the first time. With so many business loans available—ranging from unsecured business loans to secured loans—it’s important to approach the application process with a clear understanding of your business’s needs and financial situation.
Start by assessing your financial position. Gather essential financial data, such as recent bank statements, a detailed cash flow forecast, and your business’s balance sheet. Lenders will use this information to evaluate your ability to manage cash flow and make regular loan repayments. For many banks and lenders, demonstrating a strong financial position is key to accessing lower interest rates and more flexible repayment options.
Next, consider the type of business loan that best suits your goals. If you’re looking for fast access to funds without putting up collateral, an unsecured business loan might be the right fit. However, keep in mind that unsecured business loans often come with higher interest rates compared to secured loans, which require assets such as property or equipment as security. If you have valuable business assets, a secured loan could offer a lower interest rate and a higher minimum loan amount. Before making a decision, be sure to compare business loans to find the option that best fits your needs.
When you’re ready to apply, review the loan agreement carefully. Pay close attention to the interest rate—whether it’s a fixed interest rate or a variable rate—as well as the repayment period, any minimum fee or application fee, and the structure of repayments. Some lenders offer interest only repayments for an initial period, which can help manage cash flow in the early stages of borrowing. Others may provide flexible repayment options or allow for early repayment, but be sure to check if any fees apply.
The application process itself can vary. Many banks and financial institutions now allow you to apply online, making it easier than ever to submit your application and supporting documents. Alternative lenders, such as online or peer-to-peer platforms, may offer a faster application process and more flexible lending options, which can be especially helpful for small businesses or new business owners.
If your business is juggling multiple debts, consider debt consolidation as part of your financing strategy. Consolidating your debts into a single business loan can simplify repayments and potentially secure a lower interest rate, helping you manage cash flow more effectively.
Above all, take the time to compare offers from different lenders. Look beyond just the interest rate—consider the total interest costs, fees, and the flexibility of the repayment schedule. Make sure the loan aligns with your business potential and long-term goals.
By preparing your financial data, understanding your options, and carefully reviewing the loan agreement, you can navigate the application process with confidence. Whether you’re seeking a small business loan to support business growth or looking to refinance existing debt, the right approach will help you secure the funding your business needs to thrive.
