• Business Finance

Business Financing – What’s available to all New Zealand Businesses?

While many entrepreneurs may have an aversion to debt, business financing will help grow your company if used correctly. Of course, it is crucial to work within your company’s financial constraints, but there is no reason why you can’t utilise business lending on a long-term basis. Here at Crester Credit, we offer a range of business-related finance covering a multitude of activities.

Startup business loans

If your first thought at the mention of startup business loans is to rein in your growth plans to minimise debt, then maybe a startup business is not for you. It would be best if you were open-minded, forward-thinking and appreciative of the cost of debt. However, in many ways, an underfunded startup is worse than an overfunded startup. You need to give your company a chance.

If you have secured more startup finance than you require, you can use the excess to expand quicker or pay off part of your startup business loans, whichever is appropriate. However, if you have underfunded your business from day one, it is challenging to return to your lenders and ask for more money. The fact that you are back asking for more money before the business is even up and running is not a good vibe to be giving to your finance providers!

Expansion plans

It is a fact of business life; if your company is not growing, then effectively, you are moving backwards as your competitors expand. It is hazardous to stand still in business, with many people using business financing to fund expansion. To secure expansion finance, you will need to clearly understand your business, market, customers, and the financial consequences of taking on debt.

You will also need to calculate an acceptable payback schedule, your return on investment (ROI) and, as we will cover in a moment, cash flow. Many people are scared of expanding their business predominantly because it can be challenging to produce a business plan with so many unknown variables. We appreciate not everything is set in stone. Things do change, and there will almost certainly be challenges along the way. However, it is essential to produce an expansion plan detailing the variables, assumptions, and an in-depth understanding of your industry.

Cash flow management

The business world is littered with “great” companies which began life with adequate startup capital but failed to manage cash flow. As one example, when looking at retail businesses, there is a natural gap between paying for goods and receiving proceeds after you sell them. Unfortunately, it is very easy to ignore this effective cash flow funding gap and concentrate on growing your business – as quickly as possible.

Many business leaders will tell you that cash flow management is the foundation of any business, the next stage after startup business loans. As your business grows, the percentage cash flow differential between the moment you buy goods and the moment you sell them will remain the same. However, the actual figure in cold hard dollars will grow as you attract more business, increasing turnover. If you required $10,000 cash flow prior to a significant expansion programme, this may grow to $20,000, $30,000 or even $50,000. Failure to pay your suppliers will leave you short of goods to sell; this has been the ruin of numerous businesses.

Whether you have additional financial resources available as and when required or have injected additional capital into the business, it is vital to ensure the cash keeps on flowing.

Bridging finance

Whether you are looking to purchase machinery or property for your business, at some point, you will likely consider the option of business financing in the shape of bridging finance. This can be extremely useful where a company is paid at the end of a project or via stage payments. In effect, bridging finance is, as the name suggests, a bridge from where you are today financially to where you need to be tomorrow. You will need to present a sound business plan when looking to secure bridging finance, with additional costs and interest charges factored into your projected returns.

Many people automatically relate bridging finance to the residential property sector, where people look to secure their new home before selling their old one. But, as you will find, bridging finance is also an integral part of the business world and one which you may need to consider for your company at some point.

Construction loans

While traditional bridging finance is often used in the construction industry, many finance companies provide focused construction loans. This type of finance is moulded around the demands of the construction industry, the need to buy materials and sometimes access additional labour to complete a project. In addition, even though most projects will involve stage payments to assist with cash flow, construction companies often require initial seed finance for new projects. Thus, they need to have “skin in the game”.

When starting a new construction project, finance and insurance can often be restraints until the building reaches a specific standard. This is the perfect scenario for a construction loan; short-term finance can help bring a property to a level where it can be refinanced on a long-term basis. As you would expect the value of the property to have increased after the development, it may be possible to release an element of equity simultaneously. Pay off the construction loan and bank the balance!

Business equipment/merchandise loans

Whether in the initial stages of your business set-up, or the long-term growth phase, you will likely be offered finance from your suppliers regarding equipment/merchandise. These terms often seem very favourable, work for both parties, and many companies are happy to sign on the dotted line. However, step back and think a little more before you sign your life away!

Here at Crester Credit, we can provide finance for equipment/merchandise acquisitions that will turn you into a quasi-cash buyer in the eyes of your supplier. As a cash buyer, no finance, no threat of reneging on repayments and funds upfront, you can often negotiate huge discounts and/or freebies. Unfortunately, the alternative can sometimes be an unhealthily close relationship with your equipment/merchandise providers. Imagine the scenario; you begin to fall behind with your monthly repayments. Your supplier then decides to limit your access to additional products due to concerns about your financial situation. The lifeblood of your business is being taken away!

Website loans

In the early days of the Internet revolution, simply having a website gave a great impression to your customers and potential customers. The situation today is very different. Your website can very quickly look outdated, less easy on the eye and, more alarmingly, insecure. Consequently, you must update your website regularly. We aren’t talking about a full-scale rebranding, just a regular MOT, say every four years, to add the latest widgets, design trends and the growing number of payment options.

If your website is outdated, there comes the point when you will cause less reputational damage not having a website. The modern-day customer has been spoilt with developments in the online arena; you need to keep up-to-date.

Even a modest improvement in your conversion rate, the number of people who visit a website divided by the number of sales, can significantly impact profitability. It is also essential to use the likes of Google Analytics to track visitor numbers, conversion rates and your most popular and least popular pages. A simple update of your website will not necessarily require significant business lending, and very often, you will see an immediate improvement in sales. The payback time can be swift!

Strategic Finance partners

As you can see from some of the business financing options above, this is a very fluid area of the business arena. You will likely require external financing at numerous points in the growth of your business. Here at Crester Credit, we prefer to build long-term relationships with our customers. A deep-seated knowledge of their business, aspirations, and goals allows us to mould business lending around their particular needs. We regularly provide short-term finance for established customers that can be used to improve cash flow or secure a time-critical investment.

This is a win-win situation; clients appreciate what we can offer, we understand their business, and we can provide a form of personalised finance.

Liquidity is the key

In theory, there is nothing wrong with having a degree of scepticism when it comes to taking on debt for your business. However, it is essential to maintain liquidity/cash flow to ensure that your business can operate without restrictions. Startup business loans are the first stage in your development, and then we move on to the next phase, growth and more formal/long-term business lending.

Controlled growth is all good and well, but sometimes opportunities arise to take your business to the next level. No matter the economic situation, good companies and good ideas always attract finance. Consequently, it is crucial to plan ahead, monitor your cash flow requirements very carefully and ensure there is finance available as and when required. This is where your strategic finance partner, Crester Credit, comes into play!

Fail to prepare, prepare to fail

The old saying “fail to prepare, prepare to fail” is relevant for today’s businesses and entrepreneurial activities. Taking on a strategic partner can provide access to business lending and mentors who have been there and done it all. They can help you avoid the same mistakes they made and maximise your profits. As a responsible lender, we appreciate the trials and tribulations of business and factors that are out of your control, such as a struggling economy. In addition, we know from experience that long-term arrangements with our customers further enhance our offerings to the benefit of all parties. We can provide most of your funding requirements, from startup business loans to traditional business financing. We look forward to working with you in the future.

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by Ash Horton

November 10, 2020