Many businesses may have debts they are struggling to pay due to the coronavirus pandemic, such as car loans, credit cards, business loans and unsecured business loans such as Moula, Prospa & GetCapital as well as outstanding bills such as rent, suppliers, wages and other expenses.
What can you do to get back on your feet? A business debt consolidation loan can help.
If you own real estate – consolidate with a mortgage
For those of you that own real estate, you can combine the debts into a low rate mortgage and reduce your repayments which in turn will increase your cash flow. The increased cash flow will give you some breathing space.
For example, if you have:
- A car loan for $30,000 with repayments of $1,500 a month;
- A credit card with a balance of $20,000 with repayments of $750 a month; and
- A mortgage with $500,000 owing with repayments of $2,100 a month.
Then your total repayments are $4,350 per month.
Now if you consolidate these debts into a mortgage, then this can cut your repayments to just $2,272 / month!
That’s a difference of $2,078 / month!
But remember doing this will extend the other debts for the life of the mortgage. Consider paying the debts you consolidate over a shorter term. Whilst this may increase your monthly repayment it does mean you pay down all those small debts quicker.
Please call us on 1300 889 743 or enquire online and one of our mortgage brokers can call you back to discuss your options.
If you don’t – consolidate with a business loan
A mortgage is the cheapest way to borrow for your business, however, if you don’t own real estate, then a lender can provide an unsecured business loan or can take a general security charge over your business or business assets.
It’s much harder to get approved for an unsecured loan; however, some lenders can offer amounts up to $250,000. The catch is that you need to already be in a good position.
These loans are not available to struggling businesses even though there is a government guarantee. In particular, severely affected industries will find it hard to borrow until they are back on their feet already.
What if you have defaults, arrears or unpaid bills?
Businesses may have a bad credit history of some kind due to a significant fall in revenue amidst the economic fall out from the coronavirus (COVID-19) pandemic.
There’s no one size fits all in this situation, and every application will be considered on its merit.
However, as a general rule:
- Mortgage with minor bad credit: Likely we can seek an exception from a major lender at a standard interest rate if we can show this is a once-off event and you are now trading profitably.
- Mortgage with severe bad credit: We can apply with a specialist lender that has a higher interest rate and then refinance to a low rate later once you’ve fully recovered.
- Unsecured loans: You must have a good credit history to be approved; otherwise, unfortunately, there may not be options available.
Are low doc loans available?
Yes, low doc loans are still available amidst the coronavirus (COVID-19) pandemic.
Lenders are declining loans if you’re in a severely affected industry and are looking at bank statements and BAS statements to see if your revenue has been affected by the recent events.
Tips to get approved at a good rate
Did you know that major banks typically charge much higher rates for business loans even when they are secured on your property?
Here are some simple tips to get approved at a good rate.
- Get home loan rates for your business loan: Some lenders allow you to get home loan interest rates if you’re using real estate as security.
- A good repayment history: If you can show six months perfect repayments then this gives lenders comfort that you’re not in financial distress. Pay on time, every time.
- A repayment holiday can affect refinancing: Lenders haven’t announced how a repayment holiday will be assessed when refinancing, but it’s likely to be a significant negative for most lenders.
- Negotiate to avoid defaults: If you’re unable to pay your bills or debts, then try to negotiate with your creditors to avoid getting a default lodged on your credit file.
- Credit repair: If you do have defaults, then a credit repair organisation may be able to help to remove defaults, judgements and other bad credit.
- Mitigate the risks: Lenders are very risk-averse, so make a case! Our mortgage brokers often provide more than the minimum documents, e.g. a 3-year history of perfect payments instead of 6 months. This gives the lenders comfort to make exceptions to policy.
Do you need help to present a case to a lender? Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will call you to discuss your options.
Borrowing to grow in the rebound
At the end of a downturn, there is often a recovery period, followed by a rebound in economic activity. In some cases, it is fast; in others, it can take years.
Many business owners will want to get back to work and rehire staff that were let go during the COVID-19 crisis. It’s possible to get a loan to help you to grow and the approach you take depends on your business and what security you can offer.
For larger loans, lenders may want to see a cash flow projection prepared by your accountant to allow them to consider future profits to assess your loan rather than historical results which may be lower.
Keep track of business debt for tax purposes
When you borrow for your business it’s important to keep separate loan accounts so that your accountant can keep track of which debts were used for which purpose. This makes it easier at tax time to make sure you calculate how much interest you can deduct.
This is something easy to do; just ask your mortgage broker during the application process.
To go over your business debt consolidation loan options with one of our award-winning mortgage brokers, give us a call on 1300 889 743 or fill in our online assessment form.