Setting up a new business is exciting, rewarding and naturally, a huge risk at the same time. It comes with a whole new set of challenges that need to be addressed. Many people walk away from lucrative careers in order to make a go of it on their own. The truth is, many businesses fail in that first year. So, can a business loan help a struggling business?
Business Statistics
According to the Australia Bureau of Statistics, there are 2.1 million small businesses in Australia. The hardest part? Starting up. Almost 55,000 businesses went bust in Australia in the last financial year.
More than 60 per cent of small businesses fail within the first three years. This is often due to a number of different reasons. According to a new study from the Australian Centre for Business Growth, the top five reasons are:
- Lack of leadership and management skills
- Insufficient market research and sales skills
- Mismanagement of financials
- Underestimating the impact of externalities (such as drought, fire, etc)
- Poor governance structures
So, this begs the question, can a business loan help a struggling business to combat these issues, so they can grow beyond the first three years and get on track?
What is a Business Loan?
It’s no secret that businesses require a decent amount of capital behind them to get them off the ground. This is where a business loan can come in. But before you even think about taking one out, it is important to understand what the purpose of your loan is. Without a clear goal and objective in mind, your loan will end up swallowed by the business, without achieving any set goals.
Unlike personal loans, business loans have a much stricter eligibility process, with longer application time. They are loans that need to be well thought out, and involve putting a lot of attention into your business and what you are hoping to achieve.
Can a Business Loan help a Struggling Business?
In short, yes. But it does depend on what stage your business is at.
Before even considering whether a business loan is right for you, it is important to put a business plan in place if you haven’t already. Take a look at where the business is, how it got there and where you see it going. If your business is struggling to make ends meet with no clear goals for improving practices to turn over a profit, a business loan probably isn’t going to make a big difference.
However, if you are looking for a little boost to give your business the push it needs and bring in the cash flow, then a business loan could be just what you need.
What types of business loans are there, and which is best for you?
- Business bank loan: this is the type of loan most people think to when it comes to a business loan. There is a long process involved, with lots of paperwork looking at your financial statements and business plan so the bank can assess the risk involved. This is one of the main drawbacks. It can take a while to get approved for this type of loan and many banks reject them as well.
- Business credit cards: this is the perfect type of loan if you are looking for a quick cash injection into the business. Just be warned that the interest rates can be very high, so unless you think you can pay it off promptly, this probably isn’t the best route for you.
- A business line of credit: you can get approved to borrow an agreed amount, only paying interest on what you use. This gives you the flexibility of having access to money when you need it.
- Business equity loan: this is where you take on the risk for the business. You can put your house or other property up as equity against the loan. The plus side is that you can borrow a large amount with a good interest rate, the downside, you risk everything.
- Unsecured business loans: you can obtain one of these through non-traditional (ie non-bank) lenders. The process is quick and straight forward, though the interest rates tend to be higher.
To summarise…
Can a business Loan help a struggling business? It it is worth considering all of your options, you never know where it might take you. No matter what you decide, a business loan can certainly give you the boost you need to get your business back off the ground.
Looking for help with your business? Contact the experts at Australian Lending Centre Commercial today and get your business back on track.
