Short term unsecured business loans
Short term unsecured business loans, are they good for business?
If you are in business for yourself no doubt that your email box, social media pages, and mail box have been overflowing with offers from any number of lenders and brokers offering “short term, unsecured Loans” with “easy repayment terms”. But are they good for your business?
In our view, occasionally yes, but mostly NO, they are not good for you or your business. So let’s look at these loans because they are appealing with their glossy brochures and the lure of really low daily or weekly repayments. But let’s get right down to the nitty gritty – how much is that daily repayment going to take out of your cash flow? What cash do you really have available at the end of each day’s trading? What happens if it turns quiet? What was the basic problem in your business that meant that you needed the loan in the first place? What is the total cost?
Starting with the total cost some of these loans can cost as much as 50% to 60% over a six or nine month period – annualise that and the rate can be up to 100%.
There are some times when these loans can be good for you. An example would be a retailer that wants to stock up for Christmas and they know that they will have good income in December – that income will repay the loan quickly, and as long as the margin on the stock is greater than the cost there is a benefit.
But in most cases these loans are the beginning of a cycle of getting a new loan elsewhere to pay out the first, then another to repay the second, then another and so on. The amount just gets higher and higher and it all gets out of control.
So, if you are tempted to go down this path go see your accountant first, or come see us. We have trained and experienced business lenders who can offer assistance and we may be able to secure funding for you on much better terms.
Do we sell these products? Yes, because as we said above there are times when they are appropriate, but we will alert you to the risks and try to find a better solution.
But generally, the answer to the original question “Short term unsecured business loans, are they good for business?” The answer is no, certainly not.
About the Author
David Traynor has been in the finance industry since 1982, is a member of both FBAA and MFAA, plus the Commercial Asset Finance Brokers Association (CAFBA), David holds a Diploma in Finance and Mortgage Broking Management and has been awarded as a Fellow of Finance by FINSIA.
David established Regional Finance Solutions in 2013 when he became aware of the banks continued removal of traditional bank branch based lenders. Regional Finance Solutions currently has 17 brokers spread across the North Coast, New England and North West. Banking roles for David have been extensive and have included roles in branches through to executive management roles.