Loan type Business & Cash Flow Loans

Property-secured or cash flow finance: what's the difference?

Business lending comes in two broad shapes. The difference is what the lender relies on if things don't go to plan.

A property-secured business loan is backed by real estate: the business premises, an investment property or a director's property. The lender looks first at the security, so the amount depends on the property's value and what's already owed against it.

Cash flow finance relies on the business itself. The lender looks at earnings, how reliably they turn into cash, and how comfortably they cover repayments. It suits a business with strong trading but few hard assets, and it's often how business acquisition finance works, with the target's earnings supporting the debt used to buy it.

There's an old line in accounting: profit is an opinion, cash is a fact. Profit depends on when revenue is recognised and how costs are treated. Cash is either in the account on payroll day or it isn't. Businesses rarely fail because they stopped making profits. They fail because they ran out of cash, and one of the most common ways a healthy business runs short is by growing. Every new contract means paying for staff, stock and materials weeks or months before the customer pays. Growth eats working capital, which is why the strongest businesses are often the ones that need it most.

When it helps

• Working capital. Covering the gap between paying suppliers and staff and being paid by customers.
• Growth. Taking on a larger contract, a new site or new staff before the revenue arrives.
• Buying a business. Acquiring a competitor, a supplier or the business you already run for someone else.
• Stock and seasonal peaks. Buying ahead of a busy period so the business can meet demand.
• A tax debt. Clearing ATO obligations so the business can move forward.
• Restructuring existing debt. Replacing scattered facilities with one that fits how the business actually trades.

How it works

1. Tell us the scenario. The business, how much you need, what it's for, when, and what security is available.
2. We match it to lenders. In the first conversation we'll tell you whether it fits a lender in our group or network, and what we need to take it further.
3. The lender assesses it. They look at the financials, the security and how the loan will be repaid, and make the credit decision.
4. Funds, then repayment. The loan is repaid from trading cash flow, a sale or a refinance, as agreed at the start.

What lenders look at

A bank tends to ask whether a business fits its policy. A private or non-bank lender asks whether the loan makes sense. The questions overlap, but the second leaves more room for a business with a story to tell.

For cash flow lending, that means recent financial statements, tax returns and BAS lodgements, management accounts, and the business's record of meeting its obligations. Lenders look at how well earnings cover repayments, not just whether the business is profitable. For property-secured lending, the value of the security and the debt already against it matter most.

For an acquisition, they'll look at both businesses, the price being paid and how the combined business will carry the debt. In every case, a clear account of what the funds are for and how they'll be repaid does more for an application than almost anything else.

What it costs

Private business loans are priced above bank lending, and the gap reflects what the lender takes on. Cash flow finance relies on the business's future performance rather than a hard asset, so it carries more risk and is priced for it. Property security generally narrows that gap. Establishment fees are common, and interest can often be structured around the business's cash cycle.

Getting indicative terms costs you nothing, and any fees are agreed with you up front, before any work starts.

This page is general information only. It isn't financial, credit or legal advice and doesn't take into account your particular circumstances. Lending decisions are made by the lender.