A few of our recent blogs have touched on the difficulty businesses are facing in securing bank finance at the moment and while there are guys like us, who are trying to get you focused on how you can better manage your business’ cashflow, there are also those who would jump at the opportunity to make a buck from you. Queue the TV advertisements offering quick and easy business finance…
These products really grate on my soul, they take advantage of people who are desperate or are looking for a quick fix. Ultimately, what they get is an additional financial burden for their business to bear.
Now, I’ve done a bit of research into some of the products currently on the market, and what stands out is the lack of transparency around fees and interest rates. Generally, they require you to hand over your details before you even have an inkling about what you are getting yourself into. And what’s to bet that once they have your contact details, they will hound you???
The one company, Moula, which clearly states its interest rates “and not a cent more in sneaky hidden fees” provides these on a fortnightly basis (between 0.61% – 2%), which sounds reasonable but if you calculate this on an annual basis, it’s around 30%.
The website looks schmick… and includes promises like…
- instant approval
- immediate access to funds
- no hassle application
- no need to provide financials
- fast and fair
What they don’t focus on is:
- Rates can be much higher than obtaining finance with a bank, or even using your credit card. Non-bank lenders don’t have to provide comparison rates, so it can be really difficult to compare providers.
- The terms, fees and conditions may result in higher borrowing costs. For example, one provider requires that repayments are made via direct debit, but charge you an additional fee to do this EVERY. TIME.
- Depending on the amount you borrow, you may need to provide a personal guarantee, which means you will be responsible for repayment if your business is unable to meet its obligations
I guess what I am trying to say here, is that these companies do provide an alternative to traditional forms of finance, and yes, it will be quick and easy….. but you need to do your research, know what you’re in for and PLEASE treat these lenders as a last resort.
If you are having cashflow problems or difficulty obtaining finance, speak with your accountant to discuss other options.