When we want the cheapest gadget, the name that has become globally synonymous with ‘low cost and fast delivery’ is Amazon. The world’s ‘online shop on the corner’ has become many shoppers default go-to. Why? Because convenience is the name of the game, and Amazon proves year after year that it gets this like no other online retailer does.
But price and speed aren’t exclusive to consumer goods. Both are important in lending too, and our expectations of how credit should be purchased and delivered are stepping up, thanks in part to what is often dubbed the ‘Amazon effect’.
A number of local online comparison sites and marketplaces are attuned to this and are bringing the Amazon experience to lending. Companies like Finder, Valiant Finance, and Canstar are helping everyday business owners compare loans from different providers, all in one place. These comparison sites can be huge time savers for small businesses, plus they smooth the playing field for all lenders. By allowing small businesses to compare every product to a defined benchmark, they encourage the best products to rise to the top, not the lenders with the deepest advertising pockets.
Australian SMEs look beyond the credit card
Unsecured finance for businesses has long been the domain of credit card providers, but thanks to new credit risk decisioning models and better technology, the number of affordable unsecured loans offerings is increasing. Many of these products come from non-traditional lenders and unknown brands, meaning word of mouth and comparison sites can be the best way to surface some of the new lending solutions.
While credit cards have long been a favourite of small business owners and will continue to remain an important part of the funding ecosystem, business lending tastes are maturing.
According to the Australian Bankers Association, about half of all small businesses (those with 20 or fewer employees) now have a business loan facility other than a credit card. Overdrafts were the most common source of fast cash after credit cards, with the price dropping year on year. The report found the average interest rate on a new small business bank overdraft was 8.80 percent in December 2015, the lowest since the end of 2003. If you have an overdraft, make sure to check your deal is on par. If not, you’ve now got some ammunition to take back to the bank to negotiate a better deal.
Unsecured lenders sharpen their pencil
But if you’re in the market for a substantial loan, and you don’t want to put the house up as collateral, you’ll be pleased to hear the interest rates on small business loans are at generational lows.
Thanks to the entry of nimble, tech-savvy non-bank providers and fintechs, pricing and access to unsecured loan products is also getting sharper every year. While secured finance will still be the cheapest cash available for some years to come, it easy to forget it comes with hidden costs – like your personal or business property being placed on the line.
How to pick the best unsecured loan
It might sound like a cliche, but that’s because it’s true – the best unsecured loan will always depend on your business’s individual needs. To work out what your business needs, doing a little upfront prioritisation of your goals and requirements before you start your search will help you narrow the field faster. Here are some questions we suggest you ask yourself before you hit up the comparison engines:
- Are you prepared to wait to get a better price or is access to fast funds more important?
- Would you prefer to know the exact fees for the loan upfront, or would you prefer to pay interest as you go?
- Are you willing to purchase a loan from an unknown but reputable provider, or is brand name important to you?
- Do you want a lump sum, or can you be flexible about how quickly you draw down on credit?
- What can your business manage in regular repayments? And would you like to have the ability to pay the loan back before the end of the term?
Lastly, remember to think like a lawyer when you’re entering into a loan contract. That means getting just as interested in what happens when things go wrong as when they go right.
Make sure to have the lender explain exactly what happens if you fail to make a payment. Every lender’s credit and collections policy is different, and when it comes to an unsecured product, with nothing to back it, you can be sure they’ll be rigorous in chasing you if repayments don’t land in their bank account as expected. There is less room for error in an unsecured loan arrangement, so walking in eyes wide open is important for you and your business.
If you follow these steps, your business could start 2018 with cheaper and more flexible finance than 2017, setting you up for success. If you’re ready to get going today, why not start by speaking to Octet? We offer a flexible unsecured trade finance option that could be a fit for your business. Contact our team today to learn more.