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Business loan vs business credit card

Posted on March 18, 2020 by admin

Business loans and business credit cards are the most popular financing options, but there are key differences between the two that you should consider to help you make the right choice for your business.

Business loan
A business loan is a lump sum of money that you borrow. They can be a good option for your business if you require funding for a larger one-off purchase, such as buying new equipment or machinery, real estate, business acquisition, capital investment or refinancing existing debts.

Business loans typically range from $5,000 to $50,000 and can be paid as a lump sum or through multiple set payments. Depending on your bank, you can generally make repayments in monthly or quarterly instalments that are tailored to you and your cash flow.

To get your business loan approved, there is usually a strict approval process you must pass, which can include details such as your business’s financial position and a financial spending plan.

In terms of extra costs, a business loan generally comes with signup fees and late repayment fees. The interest rate for a loan is often lower than a credit card and can be a monthly or annual rate, which typically ranges between 3-10% p.a for secured loans.

Business credit card:
A business credit card is a suitable option if you want funds for short-term needs. Business credit cards are also generally more flexible than a business loan. They usually allow for a limit of up to $50,000 and are often used for working capital, emergency money and smaller ongoing expenses.

In terms of fees, business credit cards typically have a higher interest rate than personal credit cards, however, you only need to pay interest on each month’s expenses. The interest rates are higher than a business loan and can vary between 10-20% p.a. Fees such as annual fees and late repayment fees will apply to business credit cards.

A business credit card also comes with bonus features, such as bonus points for spending, free deliveries, frequent flyer points, complimentary insurance and a reputable company credit score with good use.

Business credit cards can be beneficial in the sense that it offers flexible funding and continuously available money, however business owners should be confident that they will be able to manage the minimum monthly repayments to avoid overdue fees.

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Avoiding mortgage default

Posted on August 26, 2020 by admin

As individuals struggle with cash flow through the coronavirus, the Australian Bankers Association records that repayments on almost 500,000 mortgages have been deferred for six months. While repayments can be delayed, they cannot be avoided altogether.

Lenders can send you a default notice the day your repayment is overdue. However, they could also wait until your repayment is overdue by 90 or more days. When you receive a default notice, you are given 30 days to repay the amounts you have missed in addition to the regular repayment on your loan. Individuals who are struggling with their home loan repayments can avoid mortgage default by considering the following.

Contact your lender
Lenders are generally willing to work with you through financial hardship. Don’t be afraid to contact your lender to discuss your situation and find out what options are available for you. Lenders are often willing to negotiate short-term variations to repayment schedules that both parties can agree to. However, make sure that you do not agree to unrealistic repayment conditions that cannot be met.

Many Australian banks are offering a six-month deferral on mortgage repayments (including interest) for customers who are experiencing financial hardship as a result of COVID-19. If this is you, contact your bank to see if this is an option.

Apply for a hardship variation
Mortgage holders may be able to change the terms of their loan or temporarily pause or reduce their repayments under a hardship variation. A hardship variation can still be requested after you receive a mortgage default. To apply for one, contact your lender’s “hardship officer” and tell them that you wish to change your loan repayments due to financial hardship. This will usually require you to explain why you are struggling to make payments and to estimate how long your financial problems will continue to determine how much you can afford to repay.

After submitting a hardship variation request, your lender must contact you within 21 days with the outcome of your request. They may ask you for more details regarding your request; in this case, they must contact you again within 21 days from when you provide the additional information.

Consider selling your home
Selling your home is a tough decision, but in some cases this may be the better option if your circumstances are unlikely to improve. If you get to the point where your lender takes possession of your home and sells it, it’s likely that you won’t make as much as if you sold it yourself. When you sell your house on your own terms, chances are you will get a better price and avoid having to pay the legal fees passed on by your lender. Inform your lender if you decide to sell your home; they may ask for proof, such as a copy of the contract with your real estate agent or property advertisements.

Renting out your home until you can afford to make repayments again may also be an option if you are able to live somewhere else during this period.

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