Flexibility underpins the small business world today. Business owners take on new challenges daily and are adept in adapting to the current and changing environment. When a business requires funding, it needs a flexible business loan that can support any and all required changes.
What are the 5 things you should look for with a flexible business loan?
1. Suitability
There are so many loan options available today. So the first place to start is to determine what loan type is most suitable for your business. There is a real difference between online lenders and traditional banks. Most online lenders have much more flexible business loan products that are easier to apply for and require less paperwork.
2. Structure
The loans can be structured in different ways depending on the type of loan and the provider of the loan. Will it be a lump sum amount that is loaned over a period of time. Loans can be secured and unsecured, small and large with varying interest rate differences. All of these components make up the structure of the loan.
3. Repayment schedule
The period that you repay your loan can be adjustable if you choose flexible business loans. Most repayment periods vary from 12 months to 36 months for an unsecured loan. If it is a secured loan your repayment period could be even longer. Online providers like Lumi specialise in supporting and enabling small businesses with flexible business loans and adjustable loan repayment options. This way you aren’t locked into a 10 year loan repayment plan, which may have costly early exit fees. You can use online calculators to determine the best loan repayment period for your business.
4. Interest Rate
Interest rates can vary depending on your credit assessment, including your credit score, which is the score financial institutions give you based on your credit history, length of loan and loan type. Interest rates are not something to be afraid of as most providers will work the cost of interest into the repayment plan.
5. Transparency
When looking for the right provider be sure to look for transparency in their loan structures. Make sure you choose the right lender who doesn’t have any hidden fees. You want a provider that is really open in the terms of your loan, so that you completely understand what you are entering into.
Types of Flexible Business Loans
There are many different types of loan options available; we have narrowed down 3 of the most flexible business loans available for you.
Business overdraft. A business overdraft eases the pressure on having capital available at all times and acts as an emergency for unexpected expenditures, which is linked to your normal business transaction account. The purpose of an overdraft is to provide some back up funding and to allow your account to go into negative balance. If there is zero balance in your account and a direct debit comes out, then the overdraft will allow the funds to be debited and the account will go into a negative balance.
A business overdraft can be particularly helpful for debits that can be canceled if not paid on time. For example, a Café owner has a business overdraft in place of $2,000 and a positive balance of $150 in their business transaction account. Their monthly insurance fee of $250 is due to be debited that same evening. The business overdraft will allow the direct debit to take place and the account will now be negative – $100. The Café owner can make the repayment without fearing not being able to pay their insurance. It is basically a way to support cash flow.
Pros
- Acts as emergency funding and allows funds to be withdrawn even if there is a zero balance.
- Usually small amounts of credit, which are easy to repay.
Cons
- Often have account keeping fees while the account is in a negative balance.
- Higher interest rates.
Line of credit. This can be one of the most convenient types of flexible business loans available. A business line of credit is very similar to a credit card, whereby you only pay interest on the amount that you borrow. Once approved for a certain amount of money, the borrower has access to the pool of funds for the life of the line of credit loan. Once they repay what they have borrowed, the interest repayments stop. The credit can be debited and repaid in a continuous cycle for the life of the loan.
Pros
- Only pay interest on the amount debited
- Can be repaid at anytime
- Account can be closed at anytime
- Excellent choice for opportunity/emergency funding
- Good choice for building credit history
Cons
- Limits can be lower
- Can promote impulse buying
Short-term unsecured loans. Unsecured small business loans are one of the most flexible types of loans today. They usually have fast application processes, same day funding and sometimes the funds can be received within hours. They don’t require any collateral to secure the loan amount meaning you don’t have the risk of losing whatever you secured the loan with. You can use property, vehicles and even equipment to secure a loan. So by having the loan unsecured you don’t have the concern of the bank repossessing the item if you can’t make your repayments. When a business comes to a point where they could use some extra cash to support whatever they need from opportunities to grow the business, purchase equipment, support wages and cash flow, one of the easiest ways to secure the necessary funds is through a small business loan. Lumi has several loan options available to borrowers that can meet the demands of their business.
Pros
- Short term loans are usually unsecured, which means that no collateral is needed to secure the loan.
- Fast application process and same day funding.
- Option to pay off at any point.
Cons
- Higher interest rates.
- Better credit score needed to secure the loan.
Where can you find flexible business loans?
The popularity of small business loans has led to an increase in options available to borrowers today. Long gone are the days where you would make the trip down to the local bank, line up, wait to speak to a bank employee who would then direct you to a specialist and they would then begin to rattle off their long list of terms and conditions of their only loan type.
Small business owners are now reaping the benefits of the ever growing online lending industry. Finding the right loan to suit your business is as easy as opening up your laptop or mobile phone and taking 5-10 minutes to fill out the necessary applications online, from the comfort of your own home or even on the beach. To apply you will need an active ABN, personal details, financial statements and a business plan. You will know almost instantly if you have been approved or if you need to prove any further paperwork. To find out more about Lumi’s flexible business loans option click here.
