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Sometimes paying more is the smart option!

July 10, 2018

Bank funding is typically the cheapest option for commercial loans. But not all commercial loan scenarios qualify for a bank loan. Enter short-term finance!

Savvy brokers are discovering that diversifying into commercial lending can be highly lucrative. They’re also realising that short-term lending is an integral part of their suite of lending solutions for business borrowers.

Cost versus lost opportunity

Yes, short-term finance is more expensive. But let’s put that into context. What would the scenario look like if a loan wasn’t achievable? An inability to move forward on a project, missing an opportunity to purchase stock at a bargain price or remaining an also-ran because bank funding for an expansion falls through would all be measured as expenses.

As Platinum Executive, John Broadway says:
“The true cost needs to be rationalised by assessing what the opportunity lost cost would be if short-term funds are not accessed. It can’t be gauged by referring to the absolute rate of short-term funding.”

If funding isn’t secured, what project won’t be completed, what sale will fall through, what deposit will be lost or which options will expire? Best business practice is about weighing up the costs versus the benefits of all options. If the financial gain from being able to realise a business goal exceeds or
equals the cost of short-term funding, a short-term loan is a sensible and smart option.

The role of short-term loans is to provide an often crucial, cash injection to enable businesses to weather cash flow crisis such as paying creditors, purchasing stock, paying the ATO and providing working capital or bridging funds for construction and development.

What determines the cost of short-term funding?

The price of short-term finance relates directly to cost and risk.

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