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Growing your business
If your products, marketing, social media and the stars align, then it is odds-on that sales are good and business is booming. It may be time to consider financing business growth, whether it be for new equipment, inventory or even buying your business premises so you can turn your small business into a large business. Before you put the call out to venture capitalists, call your bank.
How can a business loan help a business grow?
1. Purchase new equipment or software
Investing in new equipment or specialised software may help you automate manual processes such as inventory management or payroll/accounting, but equipment and software can often come with a hefty price tag. The initial outlay could be a barrier for many small businesses.
Small business loan options like Asset Finance could help with purchases that you need quickly to potentially increase productivity, boost revenues and optimise business performance. The cost savings you might generate by higher output or automation of manual tasks may help with covering your loan repayments however, every small business is unique in some way. Consider seeking a professional who has the capacity to analyse and conduct the necessary calculations to ensure you are maximising your return on investment.
2. Stock up on inventory
Inventory costs can be one of the biggest expenses on the balance sheet for businesses, and many stock up well in advance to fulfil future orders. Some suppliers may offer discounts if you buy in bulk, so purchasing large amounts of inventory can be an effective way to reduce the cost per unit. If you have the finance available for a large inventory purchase, building up your supplies could be a viable option.
Consider creating a sales projection to predict demand. Underestimating the popularity of your products could leave you with empty shelves when your business is busiest while buying too much stock could leave you with unwanted inventory gathering dust.
3. Add sites or change physical location
If your small business is doing well, you may find that you’re outgrowing your current premises. This can be a great problem to have but can also be a barrier to continued growth. To relieve pressure on working capital, consider a location that will enable you the option to expand in the future.
The upfront costs of expanding your physical location can be considerable, and you’ll also have to calculate the additional overheads you may incur, such as new staff, rising energy bills, extra equipment and other expenses. A small business loan may help to expand sooner rather than later if you don’t have the required funds on hand.
4. Invest in your people
Small businesses can usually only exist on a skeleton crew for so long. As your small business becomes more successful, the pressure on your staff may increase and you may eventually need to bring in more people to cope with extra demand.
If you’re able to predict future growth, consider expanding your head count or upskilling existing employees in advance; your business will be better prepared for further growth. This is particularly true if you’re a small business owner who performs various time-consuming tasks, such as accounting and customer service. Investing in staff to take on these duties frees you up for more value-oriented opportunities.
These are just four ways that small business loans can help support you to grow your organisation, but you will need to compare available products to find one that best meets your needs. If you would like to enquire about competitive small business loans, please contact IMB to learn more about our comprehensive range of commercial lending solutions.
What are the different types of business loans?
A growing business is a healthy business. If your organisation is in a period of growth it may be helpful to have access to suitable business finance.
Before you borrow
The first question you need to ask yourself before jumping headfirst into a business loan is – is there any other way to fund growth? Freeing up internal resources by reducing stock holdings, collecting cash from customers earlier or extending terms with suppliers, could do the trick. The CPA’s Access to Finance: Tips to Guide SMEs contains information about small business finance.
If the answer is still yes, it could be a good time to work out the details. Prepare a detailed cash flow forecast to determine how much you may need, how you will repay the loan, and how long the loan term might be. From here, you could start looking at what type of business finance you might need.
What types of business loans are there?
There are several types of finance available to your business to fund growth. The following are just a few of the options IMB Bank offers:
- Debt Financing Using your unpaid invoices as security for a loan. Receive partial payment against the value of your invoices quickly with the balance on full payment by the debtor
- Business Credit Cards Some credit cards come with a high limit; however, these usually have high interest rates. It is also important to use credit cards responsibly, ensuring you don’t spend more than your business can afford.
- Business Overdraft An IMB Bank Overdraft works in conjunction with the IMB Business Transaction Account to assist you with the day-to-day working capital requirements of your business.
- Term Loan Whether it’s for asset finance or a flexible fully drawn commercial loan, you have the option to apply and receive a lump sum and pay it off over a fixed term.
- Commercial Line of Credit can allow you flexible access to funds from the bank when you need them up to an agreed maximum amount. This option may also provide long repayment terms.
Do your research
During the early stages, doing thorough research into the available product, interest rates and any fees and charges is important and could save you a substantial amount of money in the long term.
There are resources available like Canstar or Finder that compare bank rates and quality of service (both also have business loan calculators which can give you a rough idea of how much you may be able to borrow).
You can also ask prospective lenders what business banking options they offer, and why certain finance products could suit the needs of your business.
Providing security
Generally, secured business loans can offer lower interest rates, however, you will need provide security for the loan in case you’re unable to repay the loan. You may be able to use business assets, your home, commercial property or unpaid invoices as security for a business loan.
If you don’t want to tie up your assets, an unsecured business loan may be an option. Be mindful that these types of loans often come with higher interest rates when compared to secured loans.
Applying for a business loan
Once you’ve planned, forecasted and prepared, it’s time to apply for a loan. Generally, it can be beneficial to approach lenders well before you need the funds, and have your plans, finances and forecasts prepared when you meet your lender. Be able to clearly explain your requirements and demonstrate a positive track record when you apply.
When it’s time for you to get the ball rolling on the next stage of your business’s growth, get in touch with the team here at IMB Bank.
Should you buy or rent a small business premises?
One of the biggest decisions to make as a small business owner is the premises you’ll be using.
There are over 2.5 million actively trading businesses in Australia, so coming up with a one-size-fits-all solution for each organisation’s individual circumstances can be hard to come by. Nevertheless, here are some of the pros and cons of buying versus renting a small business property.
Buying
There are numerous advantages to buying a commercial property, although it’s important to ensure that this is the right decision based on your growth intentions, industry and current access to capital.
You (hopefully) gain an appreciating asset
Property prices are not always guaranteed to rise, but they can be an optional investment to make if you are confident in its ability to appreciate. Over time, the value of your commercial real estate could increase, giving you the potential to use the equity in your property to invest in your growth plans.
You have more control
As a property owner (and with the necessary approvals) you can make structural changes and modifications to the building in order to fit the needs of your business without having to worry about approval from a landlord. You can also get repairs and maintenance work completed with minimal delays.
You can lease the building
Owning a commercial property and renting part of it out could give the business an additional income stream. For example, you may choose to lease out unoccupied areas of the building for other purposes for regular rental income or otherwise rent out the property in its entirety.
Total cost of ownership can be lower
It is likely you will need a sizable chunk of capital upfront to buy a commercial property. However, your ongoing costs may be lower than renting, particularly once you’ve paid off the loan. This could be a significant saving for your business in the long run.
Renting
We’ve examined some of the benefits of buying, but what about renting? Here are the key factors you should keep in mind if you’re considering a commercial property lease.
You have the flexibility to move
Your business may experience significant growth or need to downsize its operations, which might make your current space unsuitable for your needs. Renting premises means you can simply wait until the end of the lease and find a new place to set up shop.
You don’t have as much responsibility
For business owners who already have a lot on their plate, handling the day-to-day operation and maintenance of a commercial property could add extra work you don’t need. Leasing allows you to focus more on your business and spend less time worrying about repairs, insurance and other issues with the building.
The upfront costs are lower
As mentioned, you often need access to a large deposit if you want to buy a commercial property. SMEs sometimes don’t have the funding necessary to invest in business premises and might not want to spend it on real estate even if they do. Cash flow can be especially tight for businesses in their early days, so buying property isn’t always the best use of available capital.
You may be able to sublet
Commercial sublets can provide you with an extra revenue stream while you are renting, which may be useful if you are planning to downsize but do not want to relocate completely. This additional money can be pumped back into your business to aid growth. However, there may be some legal considerations if you choose this option, so ensure that you seek some professional legal advice before taking the plunge.
Has this helped you decide whether buying or renting a small business premises is the right move? Would you like more information? Please contact our team to discuss your options.
