Indigenous Finance Australia/Faqs

FAQ's

MORTGAGE and BUSINESS FINANCE BROKERS


Why use a mortgage or business finance broker?

Mortgage and business finance brokers work for you.  A mortgage or business finance broker can be seen as a loan expert. In most cases, lending is all they do and can give you professional advice to match your needs with a suitable lending or product solution.

Mortgage and business finance brokers earn a commission from the various lenders for the loans they write. They have access to a broad range of products and are accredited with the lender to offer their product.

Mortgage and finance brokers can save you time, effort and most likely money in selecting a suitable home loan or business finance product that is matched with your needs.

As a specialist finance consulting and brokering business, Indigenous Finance Australia has entered into strategic partnerships with like-minded; next-generation online finance and insurance brokering services, aligned with our mission, and have ability to deliver specialised finance and insurance products in partnership with Indigenous Finance Australia.  

We are committed to facilitating access to mainstream lenders and insurance companies to help Indigenous Australians achieve positive outcomes, realise their aspirations to home ownership, self-employment and business ownership.

CREDIT LICENCE - OVERVIEW

CREDIT LICENCE
 
Indigenous Finance Australia ABN 80 623 570 589 is a Credit Representative of Mufti Finance Corporation Pty Ltd ABN 89 125 484 166, Australian Credit Licence 390 234.
 
PARTNER PROGRAMS
 
Business Finance: Valiant Finance Pty. Ltd. ABN 95 606 560 150 is a Credit Representative of Vow Financial Pty Ltd, Australian Credit Licence 390261
 
Residential Finance: Planwise AU Pty Ltd trading as uno Home Loans ABN 81 609 882 804 Australian Credit Licence Number 483595. Planwise is majority owned by Westpac Banking Corporation.

FEES AND PAYMENT - OVERVIEW

Indigenous Finance Australia ABN 80 623 570 589 is a Credit Representative of Mufti Finance Corporation Pty Ltd ABN 89 125 484 166, Australian Credit Licence 390 234.  

Indigenous Finance Australia is committed to facilitating access to mainstream lenders and insurance companies to help Indigenous Australians achieve positive outcomes, realise their aspirations to home ownership, self-employment and business ownership.

We are committed to facilitating access to mainstream lenders and insurance companies to help Indigenous Australians achieve positive outcomes, realise their aspirations to home ownership, self-employment and business ownership.

As a specialist finance consulting and brokering business, Indigenous Finance Australia has entered into strategic partnerships with like-minded; next-generation online finance and insurance brokering services, aligned with our mission, and have ability to deliver specialised finance and insurance products in partnership with Indigenous Finance Australia.
 
Our strategic partners are:
 
  1. Business Finance: Valiant Finance Pty. Ltd. ABN 95 606 560 150 is a Credit Representative of Vow Financial Pty Ltd, Australian Credit Licence 390261; and
     
  2. Residential Finance: Planwise AU Pty Ltd trading as uno Home Loans ABN 81 609 882 804 Australian Credit Licence Number 483595. Planwise is majority owned by Westpac Banking Corporation.
     
Indigenous Finance Australia has entered into Referral Agreements with both Valiant Finance Pty. Ltd. ABN 95 606 560 150 and Planwise AU Pty Ltd trading as uno Home Loans ABN 81 609 882 804.  These commercial arrangements between Indigenous Finance Australia and strategic partners (Valiant Finance Pty. Ltd. ABN 95 606 560 150 & Planwise AU Pty Ltd trading as uno Home Loans ABN 81 609 882 804) creates revenue / income for Indigenous Finance Australia based on a referral agreement commission.  

Indigenous Finance Australia receives upfront payments / commissions of between 20% - 40% on successful settlement of home loans or business finance generated by Indigenous Finance Australia.

LINE OF CREDIT - OVERVIEW

What is a line of credit?
 
A line of credit is a loan facility that can readily be drawn down or repaid back at any time within a pre-determined limit. This key feature means a line of credit behaves much like a credit card or an overdraft, but rather than being linked to a card or a bank account, it is its own standalone facility.
 
Like a credit card or an overdraft, interest is only charged on any amount that is drawn and the funds can be drawn down or repaid back at any time.

Given a line of credit is a standalone facility, there are a wider number of lenders who are able offer line of credit facilities to businesses when compared to a credit card or an overdraft.
 
Benefits of a line of credit
 
The key benefit of a line of credit is the flexibility it can give your business. It is fantastic having the peace of mind in knowing that you have funds at the ready to be drawn to help smooth out working capital ups and downs and taking advantage of new growth opportunities that may pop up. With a line of credit, you only pay interest on the funds you use too.

Given the nature of line of credit facilities there are a greater number of lenders with line of credit offerings out in the market. This means there is much more scope to shop around and find the lender that provides the best terms or the facility that best suits your business.
 
Drawbacks of a line of credit.
 
Line of credit facilities can all come with very different terms, so be sure to understand and be across all the terms and conditions of any line of credit you are applying for.

The key things to look out for are the fees for the line of credit facility and then the usage terms. For example, some lenders may only charge interest and no upfront or establishment fees. Some other facilities may let you access the funds electronically once per day.

Line of credit facilities can come in both secured and unsecured forms. If security or collateral is provided to back the facility, this will help you get a lower interest rate, however may not be ideal if you don’t want to have any assets locked up as collateral.
 
Applying for a line of credit
 
Applying for a line of credit is similar to applying for most other loans in that you likely have to provide business bank statements in addition to business financial statements.

When applying for a line of credit be sure to ask for any application fees (if there are any) as well as if there are any other ‘facility fees’. This could include an ongoing fee charged by the lender for having the fund ‘in reserve’ for you in the form of the line of credit. Be sure to always ask for a thorough explanation of all of the terms and conditions included in your line of credit agreement too.
 
What is the best way to use a line of credit?
 
Line of credit facilities are best kept as reserve funds to help smooth out the ups and downs of cash flow over time. Whether the funds are used to pay for unexpected expenses or fund a new growth opportunity, that is entirely up to you. The only thing would be to be careful of where your limit is and to only use the line of credit when you are comfortable that you will be able to pay back the amount you draw down in the future, so you aren’t stung with large interest bills.
 
ADVANTAGES
 
  • Super flexible
  • Only pay interest on funds used
  • Funding available when needed
  • Suitable for multiple purposes
  • No security for small balances
  • Great way to build credit score
  • Simple application process
 
DISADVANTAGES
 
  • May require long trading history
  • Can include unexpected fees
  • May require security
  • Higher rates for lower credit
  • May require director’s guarantee

SECURED TERM LOAN - OVERVIEW

What is a secured term loan?
 
A secured term loan is the classic method of getting funding for your business. Secured term loans are loans provided for a fixed time period that are ‘secured’ by a physical asset that is owned by the business or one of its directors and has an assessable value.This asset is often referred to ‘collateral’ or ‘security’. Common forms of collateral used for secured term loans include residential property, commercial property, vehicles, machinery or other equipment.
 
Pledging an asset as collateral for a secured term loan means that you are effectively giving the lender permission to take possession of the asset if you default on the loan and can’t pay it back. The key feature of a secured loan is that it is backed by collateral as part of the lending agreement. Lenders will charge a lower interest rate and provide the facility for a longer time relative to other business loan products as secured term loans are inherently less risky as the lender has a relatively clear way to recover any potential losses by taking possession of the asset.
 
Benefits of a secured term loan.
 
If an asset is pledged as collateral for a secured term loan there is a high chance that the lender will be able to recover a substantial portion (if not all) of the loan amount in the event of a default, resulting in less risk for a lender when compared to most other business loan products in the market.

Due to the relatively low level of risk in providing a secured term loan, lenders will charge much lower interest rates on and will provide facilities for much longer time periods. For commercial property, secured term loans can be provided for up to 30 years.  Another benefit of a secured term loan is that if you have an asset that isn’t being used as security for another loan you they can be applied for and obtained relatively quickly when compared to other business loan products.
 
Drawbacks of a secured term loan.
 
The consequence of offering an asset to use as collateral for your loan mean that if you default, then it could result in the asset being seized by the lender and sold off. This is done so the lender recuperates the amount of their loan and therefore minimises their losses.

When providing an asset as security, you have to be careful and be 100% sure that you will be able to pay back the loan so that you will not have worry about losing the asset.

Also, be sure to look out for are any fees attached to the facility. Secured term loan facilities can often come with early repayment fees if you pay back the loan early. Lenders will often include this fee as a way of profiting from the loan in the event that they don’t receive the expected course of interest payments because the loan is paid off early.
 
Applying for a secured term loan
 
In order to provide approval for a secured term loan, lenders will need to be comfortable that the asset will provide enough value to cover the value of the loan in the event of a default.

To assess the suitability of the asset and the health of your business, lenders will often require you to provide a combination of the below as part of a secured term loan application:
 
  • Details on any income the asset generates
  • Copies of all sales & transfer documents to prove ownership
  • Details on any existing claims over the asset (i.e., is part of it being used as security for another loan or does anyone else have a potential claim on ownership of the asset)
  • Details of any registered valuation that has been completed on the asset
  • Details of any insurance policies taken out on the asset
 
ADVANTAGES
 
  • Defined payment structure
  • Suitable for multiple purposes
  • Lower monthly payments
  • Longer payment terms
 
DISADVANTAGES
 
  • Have to provide security
  • Potential prepayment penalties

MERCHANT CASH ADVANCE - OVERVIEW

What is a merchant cash advance?
 
A merchant cash advance is a quick, easy way to get a cash injection for your business with no need for collateral or a great credit score.

A merchant cash advance is a unique type of loan facility in that the amount that is loaned (or ‘advanced’) is calculated and approved based on the turnover and sales of your business. Instead of having regularly scheduled repayments like other business loan products, merchant cash advances are paid off daily as a share of your sales.

Merchant Cash Advances are characterised by speedy funding, lower amounts of documentation & no need for security. All you need to show is that your cash flows are steady and regular.
 
Benefits of a merchant cash advances
 
Merchant cash advances often have a far easier approval process when compared to other business loan products. Providers have lower documentation requirements and often can complete an agreement without needing copies of financial statements, tax statements or other business documents. Less weight is also placed on personal credit scores as given the daily repayment structure of the cash advance, merchant cash advance lenders are more concerned about the cash flows of the business rather than your own personal credit history.
 
Drawback of merchant cash advances
 
Merchant cash advances tend to be more expensive than regular loans therefore make sure you know the annual percentage rate (APR) so that you can compare to other loan products. Despite getting an advance of cash, given the lender takes a percentage of your daily sales it will reduce your cash flow relative to if you didn’t have the facility. Being dependent on future sales you should double check that your cash flow will be enough to cover the costs and leave you with enough cash to effectively run your business.
 
What is a merchant cash advance factor rate?
 
Instead of providing an interest rate a merchant cash advance provider will give you a factor rate, often in the range of 1.1 to 1.5. A factor rate works differently to an interest rate as you multiply the factor rate by your loan amount to figure out the total amount you’ll owe.
 
Applying for a merchant cash advance
 
Applying for a merchant cash advance is a fairly different process to other business loan products. Lenders do not require as much business information and are less concerned with your personal credit score given the facility is effectively backed by your sales.
 
What lenders are concerned about is whether your business has predictable, regular steady cash inflow so that they are able to be paid back a percentage of the sales volume for the loan drawn out.
 
What is a merchant cash advance best used for?
 
Merchant cash advances are one of the fastest ways to secure funding for your business and are suitable for a wide range of business purposes. If you have had any adverse events on your personal credit report but your business has steady sales then a merchant cash advance could be a fantastic product for your business.
 
ADVANTAGES
 
  • Quick access to funds
  • Easy approval process
  • Approval based on sales
  • Credit a less important factor
  • No security required
 
DISADVANTAGES
 
  • Higher interest rates & fees
  • Less flexibility once in place
  • Often require daily repayments

EQUIPMENT FINANCE - OVERVIEW

Equipment finance is used to purchase a specific piece of equipment. The different types of equipment finance (also known as asset finance) change how you use and come to own that piece of equipment. Indeed, under some of these arrangements the lender providing the finance actually has ownership over the equipment, and you are just ‘hiring’ or ‘leasing’ it from them for business purposes (even though you will select, purchase, pick-up, house and run the equipment!).

Deciding between these options requires a careful consideration of cash available to contribute to the equipment as well as important financial consequences like having access to the depreciation expense on the asset, and recouping GST (if applicable).
 
Hire-purchase agreement
 
What is a hire-purchase agreement?
 
This form of equipment finance is where a contract is drawn up to purchase a piece of equipment over time from a lender. Technically you don’t own the equipment while making the payments, but you are entitled to use it during this ‘hire’ period. Then, when the last payment is made, ownership of the piece of equipment is transferred to you. Hire-purchase agreements can be structured flexibly to include deposits upfront (to bring down future repayments), ‘balloons’ at the end (lowering repayments but requiring a larger lump sum payment at the end), and the ability to return the asset to the lender during the ‘hire’ period if it is no longer required.
 
Benefits of a hire-purchase agreement.
 
As noted above, flexibility of repayments, upfronts, and balloons is a big benefit of hire-purchase agreements. Repayments are tax deductible expenses, and you can claim depreciation on the equipment (even though you don’t technically own it). This means that hire-purchase will often confer more tax benefits than just leasing the equipment, particularly in the early years of the agreement.

There can also be benefits in terms of financial reporting. During the hire period, the equipment is not owned by the business, so neither the equipment (asset) nor finance (liability) will be on your balance sheet. Instead, the repayments appear on the profit & loss statement as an expense. This can make business performance metrics look superior to owning the asset outright, depending on the business.
 
Drawbacks of a hire-purchase agreement

Whilst hire-purchase is a great way to steadily integrate a new piece of equipment into your business, you should also keep in mind that the entire cost of the hire-purchase agreement will be higher than an upfront purchase of the equipment (since the finance provider needs to make a profit). Also ensure that you are fully aware of the terms & restrictions regarding the use of the asset and stay up to date on changes to terms of use over the course of the agreement.
 
Equipment loan / chattel mortgage
 
What is an equipment loan / chattel mortgage?

Think of this as a regular loan, where the lender gives you cash to buy an asset and then takes that asset as security for if you fail to repay the loan (just like your home mortgage!). This is how an equipment loan or chattel mortgage works. The lender will give you the cash to purchase the equipment then use the equipment as security for the money you are borrowing from them.

Benefits of an equipment loan / chattel mortgage?

Equipment loans and chattel mortgages are popular methods of financing new pieces of equipment. This is because, first and foremost, you own the piece of equipment are not subject to any restrictions on how to use it (as in a hire purchase agreement). The equipment is also the only security that is required for the loan, making it a lot easier to free up other potential security.

Chattel mortgages / equipment loans also get favourable GST treatment – as you are making the full purchase upfront you can claim back any GST input credit in full at the time of purchase – this becomes especially valuable on larger purchases.

Drawbacks of an equipment loan / chattel mortgage?

Equipment loans often have higher credit quality requirements and can require more contribution upfront. Equipment loans also tend to have higher fees compared to hire-purchase or leases, as setting up the equipment loan costs the lender more time and documentation compared to the other types of equipment financing.

It also bears noting that, since you own the asset, there is no option to return it to the lender! Further, the equipment will sit on your balance sheet as an asset (with the chattel mortgage on your balance sheet as a liability).

LEASE AGREEMENT

What is a lease agreement?
 
A lease is similar to a hire-purchase agreement in that you do not own the piece of equipment you are using. Instead, you are ‘leasing’ it from the lender by paying a regular ‘rental’ fee (similar to renting an apartment). However, unlike a hire-purchase agreement, you may not automatically own it at the end of the repayment period. Depending on the terms of the agreement with the lender you may have the option of purchasing the equipment at its depreciated value, extending the lease period, or returning the equipment.

Further, depending on the type of lease, the leasing company may stay responsible for maintenance, registration and insurance costs (meaning these costs end up being included in the rental payment in order for the finance company to make their profit!). In comparing leases with other finance options, it is important to know who ends up paying for these costs so that you can compare apples to apples.
 
Benefits of a lease agreement
 
Using a lease to get new equipment is often fast and easy, as the vendor of the equipment may offer the lease agreement themselves as part of the sale process. Leases are often preferred when you don’t actually want to own the equipment forever and would like to upgrade after a known period of time (e.g., with computer equipment that becomes obsolete quickly).

Lease payments are tax deductible just like interest on a business loan. Additionally, you do not pay the GST on the asset - the lender owns the asset fully, so they handle the GST whilst you only pay for the ex-GST cost.

If your lease is an operating lease, then the lessor may be responsible for maintenance and repairs on the equipment.
 
Finally, as you are leasing the asset you don’t have the equipment on your balance sheet – either an asset or a liability.
 
Drawbacks of a lease agreement
 
Whilst leasing offers many benefits, it also has some drawbacks. These include not being to include depreciation expense on the equipment to lower your tax bill.

Further, a leasing arrangement will have terms and conditions on allowed uses of the asset in order to preserve its value for the lender.You may have to work these use restrictions into your operating processes or at least be aware of them if an extraordinary use-case for the equipment comes up.

If you have a purchase option under a finance lease but don’t purchase the equipment and the lender needs to sell it on the market, you may be liable if the sale price is less than the depreciated value of the equipment, so look out for this in the terms and conditions.

Early termination of the lease can also incur fees from the lender, which is worth keeping in mind your business needs are likely to change.
 
ADVANTAGES
 
  • Tax benefit of depreciation
  • GST advantages
  • Relatively fast
  • Simple application process
 
DISADVANTAGES
 
  • Harsh terms & conditions
  • Impact of changes in value
  • May have high fees & charges

UNSECURED BUSINESS LOAN - OVERVIEW

What is an unsecured business loan?
 
Unsecured business loans are loans provided for a fixed time period that are not backed by a property, equipment or other form of collateral. As a result of not requiring any collateral, unsecured term loans are often supported by business cash flows in combination with the borrower’s creditworthiness. This means that for an unsecured business loan, the financial health of your business and your credit rating will have a larger impact on any approval outcome relative to a secured business loan.

Unsecured business loans are short term by nature. Depending on the lender, unsecured business loans can be provided for anywhere from 3 months to 3 years, however some of our peer-to-business lenders can provide an unsecured business loan for up to 5 years.

The key feature of an unsecured business loan is that they do not require any collateral – i.e., no one can make a claim on an asset of the business if repayments can't be made. This makes the loan riskier when compared to a secured business loan and as result lenders will charge a higher interest rate and provide the funds for a shorter amount of time.
 
Benefits of an unsecured business loan
 
An unsecured business loan allows a business to gain quicker access to cash compared to other business loan products and is a great alternative if you do not want to put up any of your personal or business assets as collateral.  If your business defaults on an unsecured business loan, the lender won’t be able to seize any of your personal or business assets like they could when defaulting on a secured business loan. The only exception to this is if you have provided a director’s guarantee as a part of the unsecured business loan — if this is the case then your business assets will still be safe, but you as a director will become financially liable for covering any default made by the business — more on this in a bit!
 
Drawbacks of an unsecured business loan
 
Given collateral is not required, unsecured business loans are generally a riskier type of loan to give for lenders. To compensate them for the additional risk of default relative to a secured term loan, unsecured term loan lenders will often charge a higher interest rate and provide the loan for a shorter time period.

When applying for an unsecured business loan, the cash flow health and creditworthiness of your business will have a much higher impact on the approval of any application. Lenders will therefore require a more information and understanding about the business before they can make a decision when compared to a secured business loan.

Applying for an unsecured business loan

In order to provide approval for an unsecured business loan, lenders will need to be comfortable that your business will be able to support any required loan repayments.

In order for lenders to assess the stability and risk of your business, they will often require you to provide a combination the below as part of an application for an unsecured business loan:
 
  • Business financial statements
  • Business tax returns & statements
  • Business bank account statements
     
As a part of the application for an unsecured business loan, you may be asked to provide a ‘director’s guarantee’. This means that you as a director, are ‘guaranteeing’ that the loan will be paid back and that if the loan can’t be paid back and goes into default, that you will be personally financially liable to have the loan repaid. This could potentially involve the lender seizing personal assets to recover the value of the loan.

What is an unsecured business loan best used for?

Due to the short life-span of an unsecured business loan, they are best suited to aiding short-term working capital needs rather than funding large, lengthy business projects. As an example, they are a fantastic way to give your business some temporary breathing room when paying wages or suppliers.

Unsecured business loans also provide a great quick cash-boost to allow you to take advantage of and kickstart potential growth opportunities for your business. A great example of this is if there is an opportunity where you know some additional marketing spend would result in an increase in sales, but you don’t have the cash for it — an unsecured business loan would be a perfect way to raise the funds to undertake the marketing and grow your business.
 
ADVANTAGES
 
  • No security required
  • Defined payment structure
  • Limited paperwork
  • Personal credit a minor factor
  • Suitable for working capital & growth
 
DISADVANTAGES
 
  • High interest rates
  • Can have harsh payment schedules
  • Available for short time-frames
  • May require director’s guarantee
  • Often have setup / ongoing fees

OVERDRAFT - OVERVIEW

What is an overdraft?
 
An overdraft is a feature of many transaction bank accounts which allows you to continue to draw funds from the account even if the account has a zero balance. Often an overdraft will have a pre-determined limit which dictates how much you are able to continue to draw from the account after its balance hits zero.

An overdraft acts much like a line of credit in that interest is charged on any amount that is drawn of the overdraft amount and it can be repaid back and drawn down at any time. The key difference is that it is often linked to a transactional bank account. If the account balance is below zero and the overdraft is being used, the account is said to be ‘overdrawn’.

Overdrafts limits can start at anywhere from $2,000 to $5,000 and if secured with collateral, can go up to over $100,000 with the maximum limit subject to lender approval.
 
Benefits of an overdraft
 
Like a line of credit, an overdraft is an open line of funds that can be drawn and paid back at any time. This is great because with an overdraft you can have the peace of mind that whenever you need new funds, whether it be for unexpected costs or brand-new opportunities, they are available and ready to go. No more going back to the bank to take out a new loan every time!
 
Drawbacks of an overdraft
 
Whilst overdrafts can provide great flexibility to your business, lender’s will often require a couple of years of trading before they will approve an overdraft.

There is also the chance that the overdraft may have a ‘repayable on demand’. This means that the lender can demand that you pay back any overdrawn amounts at their will. This can really pull the rug out from under you so it’s a good idea to be fully aware of all the terms and conditions of your overdraft!

One thing to watch out for are the different fees involved with an overdraft. These often include an upfront application fee as well as annual ‘maintenance’ fees. Many lenders provide overdrafts that don’t charge any upfront fees, so it pays to shop around and explore your options.
 
Applying for an overdraft
 
Applying for an overdraft is similar to applying for most other loans in that you likely have to provide business bank statements in addition to business financial statements.
 
When applying for an overdraft be sure to ask for any application fees (if there are any) as well as if there are any other ‘facility fees’. This could include an ongoing fee charged by the lender for having the fund ‘in reserve’ for you in the form of the overdraft. Be sure to always ask for a thorough explanation of all of the terms and conditions included in your overdraft agreement too.
 
What is the best way to use an overdraft?
 
Overdrafts are best kept as reserve funds to help smooth out the ups and downs of cash flow over time. Whether the funds are used to pay for unexpected expenses or fund a new growth opportunity, that is entirely up to you. The only thing would be to be careful of where your limit is and to only use the overdraft when you are comfortable that you will be able to pay back the amount you draw down in the future, so you aren’t stung with large interest bills.
 
ADVANTAGES
 
  • Super flexible
  • Only pay interest on funds used
  • Funds available when needed
  • Suitable for a multiple purpose
  • No security for small balances
  • Great way to build credit score
  • Simple application process
 
DISADVANTAGES
 
  • May require long trading history
  • May require security
  • Higher rates for lower credit
  • May require director’s guarantee

DEBTOR FINANCING - OVERVIEW

What is debtor finance?
 
Debtor finance is a financing solution that allows a business to use its accounts receivable ledger as collateral for funding. Debtor financing is commonly used by invoice heavy businesses as a way to manage working capital. Due to relatively high interest rates when compared on an annualised basis, a debtor finance facility is usually managed as a short-term cash flow solution. Generally, a debtor financing service will pay you up to 80% of your outstanding invoice value now and pay you the balance after customers fulfil their payment requirements (minus a fee for providing the early money).
 
Debtor financing is broken in to two different classifications:
 
  1. Invoice discounting
  2. Invoice factoring
 
With invoice discounting — you as the business will continue to manage collection of payment from the invoiced customer.

A business owner will need to ensure dedicate time and processes are in place to follow up on debtors and their payment terms.

As invoice discounting involves some degree of trust on the behalf of the lender in the loan terms, the lender tends to be more likely to offer this solution to more established businesses with larger turnover from trusted debtors (e.g., large companies, or companies with a positive track record of debtor financing arrangements).
 
Clients are unaware of any invoice discounting arrangement.
 
Invoice factoring
 
The other form of debtor financing is invoice factoring – where the lender takes over payment collection process on invoices due to the borrowing organisation. Invoice factoring organisations will therefore call and chase down the customer to request payment when the payment deadline comes up, as well as pursue any further collection processes (if necessary).

Invoice factoring allows the business owners to focus on other areas of the business and not chase payments of debtors. Clients will know that the business owner is using a factoring solution due to collecting their payments.

As invoice factoring is more labour intensive for the lending organisation, invoice factoring arrangements are often more expensive than invoice discounting.
 
Benefits of debtor finance
 
Debtor finance enable business owners to solve their mismatched cash flow problems, giving them access to already earned cash. This allows businesses to pay important expenses in the present without fearing about low cash flow issues.
 
Debtor finance also allows your business relatively quick access to cash compared to other loan products and unlike other products is flexible and develops with your business as it is secured to the accounts receivable ledger - as a business grows its account customers, the ability to increase debtor finance facility also increases.

For organisations with poor account receivable processes, invoice factoring could be an easy solution to outsource and improve the collections process.
 
Drawbacks of debtor finance
 
Debtor finance is a specialised finance solution for organisations that sell products and services on payment terms. Other business forms that do not rely on accounts receivable would not qualify for this form of financing.

Debtor financing also tends to be more expensive compared to other products, and businesses tend to need to have to meet a certain level of revenue in order for a lender to agree to debtor financing.

Business owners choosing invoice factoring will cede overall management of their accounts receivable ledger potentially highlighting to their clients the lending and collections arrangement.
 
What is the best way to use debtor finance?
 
If your organisation has a large accounts receivable ledger and as such, potentially falls into a temporary period of low cash on hand, a debtor finance solution could be your best response. Due to the relatively high annualised rate of a debtor finance facility, it is often advisable to view debtor finance as a purely short-term cash flow solution – viewing longer term finance solutions for other projects.
 
Applying for debtor finance
 
Applying for debtor finance is quite similar to applying for other loans in that you will have to provide business bank/ financial statements.A large accounts receivable volume will be a determining factor here for any lender considering the provision of a debtor financing solutions.
 
ADVANTAGES
 
  • Access to cash you have already earned
  • Solves short run cash shortages
  • Allows for owners to focus on running business
  • No physical collateral needed
  • Flexible – use when needed
 
DISADVANTAGES
 
  • Higher interest rates
  • Suited to specific businesses
  • Can result in losing control of accounts receivable ledger
  • Customer involvement could be necessary
  • Certain turnover volume

BUSINESS CREDIT CARD - OVERVIEW

What is a business credit card?
 
Business credit cards are just like personal credit cards but are used for business expenses.
 
Benefits of a business credit card
 
Business credit cards can be a super convenient way to easily settle small purchases and day-to-day expenses for your business.Business credit cards are also a great way to manage employee expenses as your team grows and have the added bonus of providing a clean way to separate business expenses from personal expenses.
 
Business credit cards usually have interest free days which means if you know your terms (and your ability to pay everything back in time) this is a great option for you to draw down whatever you feel is necessary without paying interest.

Many business credit cards also come with a rewards program. Don’t underestimate the value of these points, which, depending on how you spend them can create an equivalent indirect ‘discount’ on all of your business spending.
 
Drawbacks of a business credit cards
 
There are a huge number of options from a number of different institutions when it comes to business credit cards. When picking a business credit card, it is vital to choose a card that helps you run your business more efficiently and doesn’t add any unnecessary admin or cost burdens.

Business credit cards with rewards programs or long interest-free periods normally attract higher annual fees. You will need to be sure that the additional features that any card you choose has justify the higher annual fee you’ll pay for the card.

Credit cards providers can also charge fees for late payments, dishonoured payments or exceeding the credit limit on the card. Be careful to know the terms of the card, and regularly pay off the balance to avoid these fees piling up unnecessarily.
 
Applying for a business credit card
 
When applying for a business credit card you may need to provide some usual loan documentation including bank and financial statements which the provider will use to assess the credit health of your business. They may also ask you for a director’s guarantee and details on any other outstanding personal debts before you are issued the card. nn## What is the best way to use a business credit card?

Business credit cards are a great tool for managing day-to-day or recurring expenses for your business. Given business credit cards have relatively lower limits, they are not suited to larger equipment purchases or to fund large growth projects for your business.
 
ADVANTAGES
 
  • High day-to-day convenience
  • Suitable for multiple purposes
  • Simple approval process
  • Interest-free periods
  • Rewards programs
  • Separates business expenses
  • Very fast application process
 
DISADVANTAGES
 
  • High interest costs
  • Annual fees can be expensive
  • Can have unexpected fees
  • Personal credit a large factor