6 times you might need a small business loan

Running a small business comes with many ups and downs, as well as many occasions that may require a bit more cash than you have at your fingertips.

Here are six scenarios where a small business loan may be just what you need to keep your small business moving.

1. You need more space

If your employees are using the table in the kitchen as a workstation, or your office is now doubling up as a stock room, you could probably do with a little more space. But just because you’re ready for expansion doesn’t mean you necessarily have the cash on hand to make it happen. Whether the answer is a refit, full-on renovation or even a move to new business premises, a small business loan could provide quick funds to expand the operation.

Remember to calculate the financial benefit when deciding whether to go ahead or not. For example, will the renovation or refit enable you to sell more stock or take on more clients? Or will it just make room for Molly the office dog’s bed? Speak to your financial advisor who can help you crunch the numbers.

2. You need more stock

Buying products that will enable you to provide a service and improve your offering is a crucial part of doing business. Every business needs an up-to-date inventory, and if you’re a seasonal business, you’ll want all your stock in place before peak sales periods. If your turnover is dependent on the stock you’re carrying, but you don’t have the capital to invest, then a small business loan could be worth considering to bridge the gap.

3. Opportunity knocks

Many opportunities emerge for small businesses, and knowing which ones to chase, and which ones to pass by, is a skill in itself. If you have completed your due diligence and believe an opportunity is worth grabbing, but you don’t have the cash flow on-hand to do so, a small business loan could be the answer. It provides a simple cash lump sum that puts business owners in control of how they respond to opportunities.

4. You need to recruit to grow

Small business owners often wear many hats, but sooner or later juggling your supply channel, bookkeeping, marketing, customer service and tea-making all by yourself can take its toll. Ultimately, if you’re going to grow your business, you will need time to give the operation the attention it deserves. Employing staff can free you up to do just that. If there’s a clear connection between the hiring decision and an increase in revenue, then a small business loan could make good business sense.

5. Your premises need a makeover

First impressions count a lot in business, and if you’re a cafe with shabby furniture, you may be losing customers based purely on your interiors. Alternatively, if you’re an office-based operation, your poor ergonomic set up may be negatively affecting your employees’ productivity and/or your ability to attract star candidates. A small business loan could help give your small business the face-lift it needs.

6. You need more customers

Build it and they will come? Not quite. You could have the best product and service in the world, but if no one knows about it, you’ll not sell a bean. An investment in marketing is critical to attract customers. A small business loan could help you fund a promotion or marketing campaign to acquire new customers.

If your business needs funds for opportunity, growth or cash flow support, get in touch with one of our small business lending specialists on 0800 005 797 to discuss your options, or find out more.

The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.

How to get a small business loan that works for you

Obtaining finance can be challenging for small business owners, especially as cash flow challenges are common when starting out. If you need to access finance, these four tips can make sure you are approved, not declined.

1. Dig up your documents

Traditional lenders will demand all paperwork relevant to your business’s prospects of success, and won’t sign off an application without it. These may include a business plan, P&L, cash flow forecast, revenue projections, competitor analysis and much more.

Online lenders like Prospa make life much easier for small businesses. We want to help you take advantage of opportunities. Unlike traditional lenders, our entire process makes getting business loans easy – so you spend less time applying, and more time realising your dreams.

2. Check your credit score

Your personal credit history is usually the most important factor for a traditional lender. Banks will obtain a copy of your credit report, so it’s crucial you examine yours before applying. Otherwise you may not understand what sort of negotiating platform you’re starting from.

Even if you think your record is clean, double-check it to ensure there are no inaccuracies or nasty surprises. You may not be aware that every time you apply for credit and a credit provider obtains a copy of your report, an inquiry is logged. Credit providers may take a negative view of multiple inquiries made in a short space of time, which may affect your ability to obtain credit.

Under consumer law, you have the right to obtain your credit report and correct any wrong information. Contact any of these credit reporting agencies for a copy:

  • Equifax (previously Veda).
  • Check Your Credit (Dun & Bradstreet).
  • Experian.
  • Tasmanian Collection Service.

3. Master your pitch

Obtaining a small business loan from a bank is essentially a pitch. You’ll need to sell yourself, your business and your plans for the future, while being both professional and passionate.

This can be daunting for those with little experience presenting or selling. Make sure you rehearse, and think of any possible questions or shortcomings that might be brought up. It pays to be ready with evidence that can back up how you will overcome specific issues. The best way to do this is to prove your ROI, or showcase your business growth in easy-to-read graphs and charts.

Fortunately, getting a small business loan from Prospa doesn’t require a pitch. Once you explain the intended use of funds, Prospa will see if you meet its lending criteria by determining if your business has the cash flow to support repayments.

4. Know your security

Traditional lenders usually require the borrower to offer an asset as security against the loan. In most cases this is a property asset, or other valuable assets like vehicles or equipment. Before offering up your home as security for a small business loan, carefully consider the consequences should you default. And always consult with those who will be most affected, like your family or business partner.

If you aren’t comfortable using your house as security, then a small business loan that doesn’t require upfront security from a trusted online lender may be more appropriate.

When opportunity knocks for small businesses, there’s a range of new choices for raising funds. Prospa can help you access the funds to manage cash flow or take advantage of opportunities when they arise. Talk to our team on 0800 005 797. 

4 different types of finance to help your business grow

A new wave of lending is revolutionising the way small businesses in New Zealand access finance. Here are some of the game changers you need to know about.

Cash flow lending

Cash flow loans are usually short-term loans to help you maximise a business opportunity or manage a lumpy cash flow.

Alternative lenders like Prospa offer small business loans up to $100,000 with no security required, so you don’t have to put your family home on the line. Other positives include faster applications and less paperwork, cash-flow friendly repayments and transparency around the total amount to be repaid.

Keep in mind that not all lenders are created equal: some don’t offer a fixed upfront price, leaving owners susceptible to interest rate rises, while others may include hidden fees and charges. Look for a lender with specific expertise in small business, a reputable track record and great customer feedback.

Invoice finance

Invoice finance helps small businesses and tradies maintain cash flow when waiting for customers to pay. There are two types of invoice financing:

  • Invoice factoring: Where you sell your invoices to a third party at a reduced cost in exchange for instant payment.
  • Invoice finance: Where you use an invoice you have issued as security to get a loan.

Some invoice finance providers offer 100% of the invoice value in exchange for a small drawdown fee and an ongoing weekly interest rate. Invoice financing is a good tool to have in your kit if you often have to wait for payment after completing projects and purchasing materials. To use invoice finance you need to be the kind of business that issues invoices – like a professional services firm, rather than a cash-based business like a café.

Crowdfunding

Popular in the social and charitable space, crowdfunding has recently matured in the business arena, with platforms like Snowball Effect facilitating substantial amounts of private investment in New Zealand.

The most common crowdfunding model is based on rewards and incentives. A ‘backer’ pledges money to support your business or product idea in exchange for a discount on the new product or another reward. Rewards can be anything from a percentage of revenue to free products or the opportunity to help in the design process.

On the upside, business owners keep full ownership and clients are investors – providing direct access to market feedback. For investors, there is low risk for small amounts.

On the downside, some platforms are all or nothing, with no access to funds if the overall goal isn’t reached. Business owners need to commit time to promoting the campaign and dealing with backers, and still need to deliver on their promises if things don’t go to plan.

Crowdfunding is a form of equity funding – meaning you usually have to give up equity in the business, and is best suited to a start-up rather than an established business. It’s not a viable solution if you need help managing cash flow.

Venture capitalists and angel investors

If you need a large cash injection to start up or take your business to the next level, angel investors or venture capitalists could be good people to meet.

Angel investors

Angel investors are often business owners or high net worth individuals who see the potential in your business and want some involvement. They usually invest in industry sectors they’re familiar with and will want a targeted return on their investment. They may structure their involvement as a loan, or as equity, or a combination of both. Angel investors often come on board in the early stages of a business and contribute their experience and knowledge in addition to funding. It’s important to choose an investor who can add value and has the same vision for your business that you do.

In the technology sector, angel investment is having a big impact, particularly in Wellington.

Figures from this year show record levels of early-stage investment, with combined funding from New Zealand-based angel investors and domestic crowdfunding increasing by 35% to $112 million. Angel and crowdfunding investments into the tech sector have risen at an annual growth rate of 18% over the past four years.

Angel Association New Zealand is a great place to start if you’re looking for this type of investment in your small business.

Venture capitalists

Venture capitalists are investment companies or fund managers who provide cash in return for part-ownership of your business. They tend to look at larger businesses and differ from angel investors in that they typically want to invest larger amounts and have more comprehensive requirements.

VCs may not want to play an active role in the management of your business, instead taking a seat on your board. To find out more about venture capital opportunities in NZ, check out the NZVCA.

When opportunity knocks for small businesses, there’s a range of new choices for raising funds. Prospa can help you access the funds to manage cash flow or take advantage of opportunities when they arise. Talk to our team on 0800 005 797.