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How does bank guarantee for a business work?

Posted: Mon Mar 28, 2016 12:56 pm
by futsalclub
Hi there, a friend of mine, who's also a financial adviser, told me that I could use a bank guarantee for my business. It's only been 3 months since I started my business and he said that I could use one to help with some of my current cash flow issues. How does a bank guarantee for a business work?

Re: How does bank guarantee for a business work?

Posted: Mon Mar 28, 2016 3:58 pm
by Otto Dargan
Hello futsalclub. Welcome to the forums.

You can use a bank guarantee or indemnity to free up your cash flow through a cash deposit to your suppliers and a deposit bond to your landlord, if you're leasing a commercial property.

The bank guarantee itself will be backed by adequate security whether it's a residential property, commercial property or a cash security such as savings or a term deposit.

If you provide a residential property as security, you can get a bank guarantee of up to 80% of its value. If you provide a commercial property then you can get a bank guarantee of up to 50% to 70% of the property value.

For example, you can get a bank guarantee for up to $300,000 for your business if you have a $600,000 residential property with $300,000 owing.

Cheers,
Otto

Re: How does bank guarantee for a business work?

Posted: Mon Mar 28, 2016 7:11 pm
by futsalclub
Thanks for the info, Otto. I have another question, is it necessary that I apply for the bank guarantee with the same bank I'm currently dealing with or can I go with another?

Re: How does bank guarantee for a business work?

Posted: Tue Mar 29, 2016 9:31 am
by Otto Dargan
Hi futsalclub,

Do you mean going with the same bank that hold the loan on your residential or commercial property? If so then no, it's not necessary. You can apply with another lender if you want to.

However, if you'll be using cash as security then you must deposit the cash with the same lender providing the guarantee.

You may also want to know whether or not there's a limit on the bank guarantee you can get. Actually, as long as you have sufficient security, you won't be limited on the guarantee you can qualify for.

For example, there are many commercial property developers who usually arrange for multi-million dollar bank guarantees to pay their suppliers. Please do note that in most cases, lenders won't generally do a guarantee for less than $1,000.

We have mortgage brokers who specialise in business loans and know the policies on different banks and non-bank lenders all over Australia. You can discuss any business loan needs with one of our credit specialists by calling us on 1300 889 743 or by enquiring online.

Cheers,
Otto

Re: How does bank guarantee for a business work?

Posted: Tue Mar 29, 2016 3:47 pm
by futsalclub
Yeah that's what I meant. Thanks again, Otto. I was indeed considering factoring in the next couple of months so I may call you guys within the next week or so. Cheers.

Re: How does bank guarantee for a business work?

Posted: Thu May 26, 2016 4:40 pm
by ANZAC
Hello. I was also considering factoring and I came upon this thread while researching. I'd like to know if there are any specific qualifying requirements that I need to meet?

Re: How does bank guarantee for a business work?

Posted: Fri May 27, 2016 10:01 am
by Otto Dargan
Hi ANZAC,

Generally, you're required to meet the following requirements to qualify for factoring business loan:
  • The projected annual turnover of your business is at least $200,000. If you're only borrowing a small amount then there are lenders that may consider a turnover of as low as $50,000.
  • Your products must be sold on normal credit terms.
  • Risk must not be centralised on a single debtor or supplier. This means you'll need to have a large amount of them.
  • Your invoices should not be older than 90 days from the last day of the month of issue.
  • If you receive stage payments, most lenders may not accept your loan application.
  • If you have had trade disputes in the past, it lowers your chances of qualifying.
  • Highly efficient business debtors ledgers and credit assessment systems are preferred.
  • Without prior history with the bank, you may need to provide a security against the loan. However, note that banks don't usually accept specialised properties.
If there's anything more you'd like to know, do feel free to give us a call or go through our website.

Cheers,
Otto

Re: How does bank guarantee for a business work?

Posted: Fri May 27, 2016 4:16 pm
by ANZAC
Thanks, Otto. I'll go through your site for now and give you a call if I need to learn more. Bye.