Small business loans, assessed on equity

A small business loan from HomeSec is secured by Australian real property and assessed on the equity, the purpose and the exit rather than on turnover or financial statements. Amounts run from $20,000 to $5,000,000, the term is open, and a Lending Manager reads every file. Business or investment purposes only.

Small businesses get declined for structural reasons, not bad ones

The reasons a small business fails a mainstream credit assessment usually have very little to do with whether the loan will be repaid. They are artefacts of how the assessment is built.

• The accounts are behind. A great many profitable small businesses are a quarter or two behind on lodgement. A lender that requires two years of tax returns has just excluded them for an administrative reason.
• The owner pays themselves last. Drawings that flex with the month make the business look worse on paper than it is, and a serviceability model reads it as instability.
• One customer is most of the revenue. Concentration risk is real, and it is also the normal shape of a business with nine employees.
• The business is young. No history to score. A model with nothing to score returns a decline, not an "I don't know".
• The year was unusual. A fire, a flood, an illness, a customer that collapsed owing money. Twelve months of averages cannot see any of that, and it is exactly the context that explains the numbers.

A person decides every loan. Every application is read by a Lending Manager and every credit decision is signed off by a person. We do not use artificial intelligence to assess, approve, decline or price a loan. An algorithm cannot see why the last two years look the way they do. A person can, and that is the whole reason files we write are ones a scorecard would have rejected.

What we look at instead

Three things, in this order. The equity — is there enough in Australian real property, counting what is already owed against it. The purpose — is it a genuine business or investment purpose. The exit — how is the loan repaid, and is that a fact or a hope. A contract of sale, a refinance already in progress or a debtor with terms beats an intention every time, and it is usually what determines how fast the file moves rather than whether it is approved.

What we do not ask for at all: financial statements, tax returns, BAS, cash flow records, a trading history, a clean credit file or a sworn valuation. Amounts run from $20,000 to $5,000,000, to 80% of value on residential security and 70% on commercial.

Whether you trade as a sole trader, a company or a trust

All four structures are straightforward. The differences are procedural rather than about whether you can borrow.

• Sole trader. The simplest file. The property is usually in your own name, and you are the borrower and the guarantor in one.
• Company. The company borrows and the directors guarantee. If the security is held personally rather than by the company, that is normal and it does not slow anything down.
• Trust. We need the deed — just the deed, not the accounts — to confirm the trustee can borrow and grant security. Corporate trustees are common and not an obstacle.
• Partnership. All partners on the loan, and everyone on the title signs. The only thing that costs time here is finding the partner who is on holiday.

The part about security, said properly

For a lot of small businesses the only real estate available is the family home, and that deserves a straight conversation rather than a reassuring one. A caveat or a mortgage over your home is enforceable. If the loan is not repaid the lender can act on it. That is the trade you are making, and it should be weighed before the interest rate, not after it.

The questions worth answering honestly, before you apply anywhere:

• What repays this, specifically? If the answer is "trading should improve", that is a hope. If it is "the property settles on the 14th" or "the refinance is at formal approval", that is an exit.
• What happens if the exit is three months late? On an open term, it costs you the extra interest and nothing else — no extension fee, no penalty, no default. Ask any lender the same question and compare the answers, because it is the scenario that actually happens.
• Is this borrowing to solve a timing problem, or to keep going? Bridging a gap between a cost and a payment you are certain of is what this lending is for. Funding an ongoing loss is not, and property-secured credit will make that situation worse rather than better. If that is where you are, an accountant or a small business financial counsellor is a better first call than any lender, and we will say so.

SME loans, small business finance, sole trader loans — one file

The names multiply and the loan does not. SME is what a bank calls a small business; small business finance is what a broker calls a small business loan; a sole trader loan and a self-employed business loan are the same loan to the same person. What every one of them is asking is whether a business whose income does not survive a serviceability test can borrow — and the answer is yes, against property, assessed on the property and the exit.

How much a small business can borrow

Take the property's value, multiply by 80% for residential or 70% for commercial, and subtract what is owing on it. Between $20,000 and $5,000,000, that is roughly what is available, and the size of the business has no bearing on it.

From the call to the money

What it costs

Priced per file, on the property, the position, the amount and the exit. No rate is published, because a rate with "from" in front of it is the best file's number. How it is priced, and every fee that exists.

What this is not

HomeSec provides credit wholly and exclusively for business and investment purposes. Credit provided for those purposes is not regulated under the National Consumer Credit Protection Act 2009 (the NCCP Act), and the protections available to consumer borrowers do not apply. It is not an overdraft, an unsecured cash-flow facility, or equipment finance — if one of those fits better we will tell you, because the wrong product dressed up as the right one is how people end up worse off than when they started. The comparison page sets out what each is actually good at.

Reviewed by Catriona Anderson, General Manager