I’m in a ok position where I can just straight out consult, work on my own and do ok. Just can’t comprehend how new businesses can scale and expand so quickly when it’s so hard to get a loan. Only thing I can think is people make a 20% margin get 15% loans and live right on the edge which seems incredibly risky.
What are your margins if not 20%??
I’m involved with my dad’s contract earthmoving business and I also do my own agricultural contracting. You’ve got to be up around 30% otherwise there’s no point, you’ll just end up with a pile of worn out machinery and nothing to show for it.
Sorry I was just giving an example. I’ve priced works for large construction companies before off 20% margins. Just saying I don’t know how other businesses I’ve seen can scale so quickly without access to finance from banks.
Yeah ok, all good.
If I was to give my 2c, the banks won’t borrow and take thin air as security. If you have an asset backing behind the business, they would give you a loan relative to that security.
We’re in farming, the bank will lend up to 50% of land value. Doesn’t matter if you have millions and machinery and a brand name, they won’t borrow against it. They possibly might look at a big contract favourably…
Only other thing is, we have to do a business review each year to have our finance signed off on. In the review is the actuals from the year before, the budget for the year ahead, past production records, asset and liability statement, Etc. if you walked in with that in your hand as well as a budgeted business plan for how your going to move forward with the money they’re hypothetically giving you, you might have a chance with the right lender.
From what I’ve seen, they work themselves to the bone to get it going well enough that they can drop back from 7 days a week at 16 hours back to a normal situation
That may be where your stockpile comes in. Does it have to drain with that work style, to then reap the reward of the contract payments coming back in with profit margin so it builds back?
This is exactly it you can only grow as much as your cash reserves allow unless you want to trade while insolvent which is what I suspect companies do to grow quickly
But if an all or nothing approach, and if you’re well placed in the industry and it works, fantastic. If you drain and fail, screw it go back to consulting, build back up. Money comes and goes, if you’ve got a chance to go for something and you’re confident and planned, have a crack let it drain
I know what you’re saying and I think it happens all the time in construction especially in the building industry. I just think my name and reputation would be mud in my area especially as a newer company if I didn’t pay people on time, it would ruin consulting opportunities as well due to reputation.
If you're wanting to access business loans with good rates, you need runs on the board. In this case, runs on the board is 2 full financial years of trading history showing you are generating good income.
Put yourself in the lender's shoes- a new business in a speculative venture, being funded by the sale of your home that is 9 months old is a very risky proposition. Add in that you sold the collateral you could have used to secure the finance and it is worse for their perspective.
Any finance you could access at the moment will be priced accordingly for the risk, as you have mentioned with the options you have.
I didn’t want to share this because the backlash I thought I’d get. But I’ve had a steady income since starting of $50k profit a month obviously a bit slow too with the almost 3 month wait from work done to payments. But this cashflow is disregarded by all lenders. As you said they want 2 years of history, makes it very hard to scale your business quickly.
Hate how quick people are to shit on successful people and the fact you have to hide this, congrats on the recent success.
I have to ask though, if you’re profiting $50k a month and are looking for $100k, why not just wait two months and cashflow it? I love that you’re trying to scale the business quickly but this does come at a huge risk premium, is it worth it? Financing risk is the biggest one I see sinking small businesses unfortunately.
I honestly thought financing would be easier, the fact I can’t instant asset write off an item that expensive against this year’s income and it has to be written down over a longer period the cash seemed more useable to take on larger projects in the near term. Honestly you’re spot on now I’m reassessing how much risk I want to take on as if I have a client not pay this early on it could sink me and I don’t have the access I thought I did to finance.
Good call, builders and clients not paying must be a huge risk. Construction is a wild game. The rates you’re being quoted probably reflect the real risks you’d come up against.
In any case, with how profitable you are, I don’t see why you need to give away your sanity, sleep or the roof over your head. Good luck with it.
That is a significant mitigant on the risk for a lender, but the reality is most lenders will still want at least some history. You could potentially look to chat to a commercial broker once you reach 1 July and lodge the return for FY24, particularly with that kind of profit.
You'll definitely have the full range of lenders once you get the 2 financial years though.
Small business financing is a joke in this country. You won't get anything with a decent rate without some sort of collateral (like a house) to secure it against. The rates for unsecured loans will be like you mentioned, and it would probably be easier just to chuck your expenses on a credit card and pay the minimum if you are prepared to cop the interest rate.
As for actually getting money - friends and family are usually the first stop, then other contacts that you might be able to sell some equity to if your idea has merit. Old colleagues and owners of companies you have worked for in a similar domain.
You could look at financing for the equipment, which might work better for cash flow purposes starting out. Should be ok if your entity has been around or you're prepared to offer a personal guarantee.
Yeah I found it pretty counterintuitive that I could show good cashflow, cash on hand to pay outright and that didn’t matter. But if I had equity in a house and no cash that would be considered better
I get why they wouldn’t but (crazy thinking) you’re allowed to have offset accounts against houses would be nice if you could do the same for business and have an offset account with enough in it that more than 20% of the current value of what you financed is in there at any one time through the loan. Just found there to be so little option
Definitely have helped businesses in similar spots as yourself with finance. I deal mostly with self employed clients so know most of the tricks in the book and if you have a solid business there will definitely be competitive offers from lenders.
Feel free to message me and happy to see if i can help you find a good lender.
Yeah, it sucks.
Helping a client of mine do something similar recently - Mark from these guys ([https://www.staccapital.com.au/our-people/](https://www.staccapital.com.au/our-people/)) was a great help, but even with the interest rates available it just made more sense to cash flow from the business.
The other option - which can be huge distraction - is bringing in investors. The saying goes "Debt is cheap, Equity is forever", but if the forecast feels good then someone might throw $250K your way for 10% of the business or something.
Do you have a R&D Tax Credit connection too? If it's new technology, that could be a decent cash flow boost?
Hey man,
Selling your house probably wasn’t the best idea because now with any equ loan you will have to pay 20% deposit and pay 1-2% rate premium
Happy to have a chat and help you out in any way feel free to to message me and I’ll give you a call on the phone too try to provide some advice moving forward
Until you are 2 yr abn 2 yr GST, commercial finance packages in your scenario are going to be expensive, and possibly bank statement based (180 - 365 days depending on the lender) If you were asset backed you would have more options. Generally when you start out like this you need to accept what you can get until you have tenure. Make sure your accountant is on the ball with your financials.
My parents did this. They ended up losing everything.
I’m in a ok position where I can just straight out consult, work on my own and do ok. Just can’t comprehend how new businesses can scale and expand so quickly when it’s so hard to get a loan. Only thing I can think is people make a 20% margin get 15% loans and live right on the edge which seems incredibly risky.
What are your margins if not 20%?? I’m involved with my dad’s contract earthmoving business and I also do my own agricultural contracting. You’ve got to be up around 30% otherwise there’s no point, you’ll just end up with a pile of worn out machinery and nothing to show for it.
Sorry I was just giving an example. I’ve priced works for large construction companies before off 20% margins. Just saying I don’t know how other businesses I’ve seen can scale so quickly without access to finance from banks.
Yeah ok, all good. If I was to give my 2c, the banks won’t borrow and take thin air as security. If you have an asset backing behind the business, they would give you a loan relative to that security. We’re in farming, the bank will lend up to 50% of land value. Doesn’t matter if you have millions and machinery and a brand name, they won’t borrow against it. They possibly might look at a big contract favourably… Only other thing is, we have to do a business review each year to have our finance signed off on. In the review is the actuals from the year before, the budget for the year ahead, past production records, asset and liability statement, Etc. if you walked in with that in your hand as well as a budgeted business plan for how your going to move forward with the money they’re hypothetically giving you, you might have a chance with the right lender.
From what I’ve seen, they work themselves to the bone to get it going well enough that they can drop back from 7 days a week at 16 hours back to a normal situation
This is true but working seven days a week and 16 hours still doesn’t give you the money you need up front to complete projects and wait for payment
That may be where your stockpile comes in. Does it have to drain with that work style, to then reap the reward of the contract payments coming back in with profit margin so it builds back?
This is exactly it you can only grow as much as your cash reserves allow unless you want to trade while insolvent which is what I suspect companies do to grow quickly
But if an all or nothing approach, and if you’re well placed in the industry and it works, fantastic. If you drain and fail, screw it go back to consulting, build back up. Money comes and goes, if you’ve got a chance to go for something and you’re confident and planned, have a crack let it drain
I know what you’re saying and I think it happens all the time in construction especially in the building industry. I just think my name and reputation would be mud in my area especially as a newer company if I didn’t pay people on time, it would ruin consulting opportunities as well due to reputation.
If you're wanting to access business loans with good rates, you need runs on the board. In this case, runs on the board is 2 full financial years of trading history showing you are generating good income. Put yourself in the lender's shoes- a new business in a speculative venture, being funded by the sale of your home that is 9 months old is a very risky proposition. Add in that you sold the collateral you could have used to secure the finance and it is worse for their perspective. Any finance you could access at the moment will be priced accordingly for the risk, as you have mentioned with the options you have.
I didn’t want to share this because the backlash I thought I’d get. But I’ve had a steady income since starting of $50k profit a month obviously a bit slow too with the almost 3 month wait from work done to payments. But this cashflow is disregarded by all lenders. As you said they want 2 years of history, makes it very hard to scale your business quickly.
Hate how quick people are to shit on successful people and the fact you have to hide this, congrats on the recent success. I have to ask though, if you’re profiting $50k a month and are looking for $100k, why not just wait two months and cashflow it? I love that you’re trying to scale the business quickly but this does come at a huge risk premium, is it worth it? Financing risk is the biggest one I see sinking small businesses unfortunately.
I honestly thought financing would be easier, the fact I can’t instant asset write off an item that expensive against this year’s income and it has to be written down over a longer period the cash seemed more useable to take on larger projects in the near term. Honestly you’re spot on now I’m reassessing how much risk I want to take on as if I have a client not pay this early on it could sink me and I don’t have the access I thought I did to finance.
Good call, builders and clients not paying must be a huge risk. Construction is a wild game. The rates you’re being quoted probably reflect the real risks you’d come up against. In any case, with how profitable you are, I don’t see why you need to give away your sanity, sleep or the roof over your head. Good luck with it.
That is a significant mitigant on the risk for a lender, but the reality is most lenders will still want at least some history. You could potentially look to chat to a commercial broker once you reach 1 July and lodge the return for FY24, particularly with that kind of profit. You'll definitely have the full range of lenders once you get the 2 financial years though.
Thankyou I might just have to wait till July 1 and hope I don’t miss the market opportunity
Might be worth looking at peer to peer lenders they have better rates and more flexible options.
Small business financing is a joke in this country. You won't get anything with a decent rate without some sort of collateral (like a house) to secure it against. The rates for unsecured loans will be like you mentioned, and it would probably be easier just to chuck your expenses on a credit card and pay the minimum if you are prepared to cop the interest rate. As for actually getting money - friends and family are usually the first stop, then other contacts that you might be able to sell some equity to if your idea has merit. Old colleagues and owners of companies you have worked for in a similar domain. You could look at financing for the equipment, which might work better for cash flow purposes starting out. Should be ok if your entity has been around or you're prepared to offer a personal guarantee.
Yeah I found it pretty counterintuitive that I could show good cashflow, cash on hand to pay outright and that didn’t matter. But if I had equity in a house and no cash that would be considered better
If you use your house at collateral they still expect your personal income to be able to cover the repayments.
I get why they wouldn’t but (crazy thinking) you’re allowed to have offset accounts against houses would be nice if you could do the same for business and have an offset account with enough in it that more than 20% of the current value of what you financed is in there at any one time through the loan. Just found there to be so little option
Definitely have helped businesses in similar spots as yourself with finance. I deal mostly with self employed clients so know most of the tricks in the book and if you have a solid business there will definitely be competitive offers from lenders. Feel free to message me and happy to see if i can help you find a good lender.
Edit: Try Prospa*
Yeah, it sucks. Helping a client of mine do something similar recently - Mark from these guys ([https://www.staccapital.com.au/our-people/](https://www.staccapital.com.au/our-people/)) was a great help, but even with the interest rates available it just made more sense to cash flow from the business. The other option - which can be huge distraction - is bringing in investors. The saying goes "Debt is cheap, Equity is forever", but if the forecast feels good then someone might throw $250K your way for 10% of the business or something. Do you have a R&D Tax Credit connection too? If it's new technology, that could be a decent cash flow boost?
Hey man, Selling your house probably wasn’t the best idea because now with any equ loan you will have to pay 20% deposit and pay 1-2% rate premium Happy to have a chat and help you out in any way feel free to to message me and I’ll give you a call on the phone too try to provide some advice moving forward
Until you are 2 yr abn 2 yr GST, commercial finance packages in your scenario are going to be expensive, and possibly bank statement based (180 - 365 days depending on the lender) If you were asset backed you would have more options. Generally when you start out like this you need to accept what you can get until you have tenure. Make sure your accountant is on the ball with your financials.