Episode 92: Don’t pay more interest than you have to.
28th May, 2024
In this episode, Trudi Cowan and Sarah discuss how to avoid paying more interest than necessary on business loans. They emphasize the importance of planning ahead and seeking the right advice to secure the best loan terms. They also highlight the impact of credit ratings, financial statements, and bookkeeping on interest rates. The conversation covers topics such as refinancing ATO debt, the pros and cons of low-interest rates with higher fees, and the importance of matching loan terms to the purpose of the loan. The key takeaways include the need for proactive financial planning, understanding loan terms and fees, and seeking expert advice to optimise loan options.
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DISCLAIMER- The information and material in this podcast, and supplementary and associated information available, is for general information only. It should not be taken as constituting professional advice from the podcast owners, and we recommend you seek independent suitable advice that is specific to your unique circumstances.
Podcast Transcript Available Here
Trudi Cowan (00:13.657)
Hello, Sarah, welcome back to the Financial Fofu podcast.
Sarah (00:17.808)
Hello everyone.
Trudi Cowan (00:19.855)
We have, as always, got another interesting topic for you today. And today we're going to talk about how to not pay more for interest than you have to.
Sarah (00:31.086)
Mmm, it's good one, isn't it?
Trudi Cowan (00:33.039)
It is a good one. And I think it really piggybacks off our last couple of episodes as well around when to call in the experts and when to get the right sort of advice, but also talking about your credit ratings and some of the impacts that both of those things can have on how much interest ultimately you end up paying on your business loans.
Sarah (00:40.336)
Yeah.
Sarah (00:52.752)
Yes, especially when people don't like paying tax. I'm pretty sure people don't like paying interest either when you ask them point blank.
Trudi Cowan (01:00.431)
Yeah. And I think when you're looking at going for loans, it comes back to one of our favourite topics about planning. And if you're planning that you're going to need funds, whether it's an overdraft or because you're buying some equipment or whatever the reason may be, if you're planning and thinking about it in head, it's always going to give you a better outcome than if you wait till the last minute and suddenly you're desperate for that finance.
Sarah (01:07.216)
Hmm, yeah, it really does.
Sarah (01:29.68)
I think that's been a big theme of the last six to 12 months. Like occasionally you get a runner clients that do it, but it seems to be now that pretty much every client that's coming to me, one I had recently, they need the money now. And often now is too late because they waited too long. They didn't plan out like as we said in the previous episode about if you need thinking you need an advisor now, now is the time that you seek them out.
Certainly relevant for lending if you think you need money now is the time you pick up the phone because the longer you leave it Especially in a declining marketplace and if your sales are dropping it makes it much harder for me to get you finance and if you haven't Done the things you need to do to get finance makes it even harder. So
Trudi Cowan (02:14.371)
Mm -hmm. Yeah. And so what are some of those things? So obviously having your financials and your tax returns all up to date can make things a lot easier. And even just having your books up to date.
Sarah (02:24.118)
Yeah, look.
Yes, yeah, the books is the number one, even if you haven't completed your most recent tax return and financial statements yet. As you know, I'm a really strong advocate for having your financials done literally at the end of the financial year in July because it allows you to plan forward. But it also saves this issue from occurring that if you need finance urgently, maybe you get a really cool opportunity that comes your way and you need to be able to float that then having your financials completed in the next couple of months.
Trudi Cowan (02:38.935)
Yes.
Sarah (02:56.752)
is the fastest way to secure the cheapest interest rate provided that you are actually making a profit.
Trudi Cowan (02:56.887)
Mm.
Trudi Cowan (03:03.823)
Yeah, and does it give you a few more options as well if you've got those documents all ready to go?
Sarah (03:07.824)
Yeah, absolutely. So many more options, not just a few, right? It immediately opens you up to your major lenders, your major banks. It opens you up to the second tier funders that operate on similar policy criteria as the major banks, but with perhaps a little bit more discretion. It opens up the door for not just cheaper interest rate, but cheaper fees sometimes as well, and a broader suite of products.
Trudi Cowan (03:12.045)
Hmm.
Trudi Cowan (03:16.813)
Yep.
Sarah (03:37.856)
as well. So for example if you're looking to utilise invoice finance or a credit term facility based off your debtor's ledger, having your books up today means that I might be able to get your rate at say 10 % with really no ongoing fees or no drawdown fees which is the cheapest in the market but that funder will only utilize your financial statements because they're still looking for clients that are solid.
Trudi Cowan (03:39.329)
Yeah.
Trudi Cowan (04:03.821)
Yep.
Sarah (04:06.704)
that have completed their statutory requirements and have their details up to date. Whereas other lenders, they just want to be able to log into your zero. And then some other lenders will just get you to plug your bank statements into their system and they'll do an analysis based off the bank statements. And those ones are usually easier to obtain, but they have a higher interest rate. And so it depends on what your needs are. And we'll get into that a little bit later in terms of why you take a loan with perhaps more interest.
Trudi Cowan (04:06.927)
Yeah.
Sarah (04:35.28)
because it still fits in with the don't pay more interest than you have to argument that we're running today because it's about how you use the facility. So, yeah.
Trudi Cowan (04:42.703)
Yeah. And I guess if we're really looking ahead, often when I'm doing tax planning with clients, one of the things we do talk about is, you know, is there going to be a need for finance in the next 6, 12, 18 months? And if there is, are our financials in a position that looks great to a bank?
Or do we need to pay some less wages to make sure that you are actually at a profit? Or is there something different that we need to be doing or considering, making sure we're bringing in some additional revenues so that our financials are actually in the best position possible when being presented to a bank? So sometimes we really are forecasting well in advance of needing to go to speak to the bank.
Sarah (05:01.04)
Yeah.
Sarah (05:15.632)
Yeah. Yeah.
Sarah (05:24.24)
It's actually the best way to do it. I have a client now that comes to me every April, May, and they are a big e -commerce store online and they have an in -house business manager and she's fantastic. She's like always over the financials. Like any question I've got, I've got forecasts from her that go for pages. They're fantastic. And the reality is though, is that when we're looking at Christmas stock, you think May, why are you getting funding in May? Well, if you're doing your supply chain ordering,
Trudi Cowan (05:43.503)
You
Sarah (05:53.936)
correctly, you need to be ordering it in the next eight weeks, which means you need to have your funding line ready to go. And if you don't want to utilize sustained long -term debt, i .e. you've got a business loan and then you're trying to draw it out of your cash in your bank account instead and not pay off the business loan, which is not their strategy, they try and pay off their debt every year so they don't incur long -term debt and therefore pay more interest than they have to.
Trudi Cowan (05:54.157)
Yeah.
Trudi Cowan (06:17.173)
Mm -hmm.
Sarah (06:18.068)
So, you know, they come to me early. So the timing piece is super important depending on what your needs are. And if you're not looking at your business as a long -term goal, is it going to be here in the long term? Common problem.
Trudi Cowan (06:32.399)
And one of the things that I often do with my clients is I do actually recommend that they go and speak to a finance broker to get the right advice because what is the right loan for the particular type of financing that you need? Like we've spoken about lots of different types before from overdrafts and invoice financing or shadow mortgages and making sure that you're actually getting the right loan type for your purpose can also have a big impact on the interest rate.
Sarah (06:38.736)
Yep. Yep.
Trudi Cowan (06:59.855)
I have seen in the past people go get an overdraft, but they then used it to buy, say, a car. And they've ended up paying more interest than they've had to because they haven't repaid it off as quick as they should have and different things like that.
Sarah (07:06.168)
Yeah.
Yeah. Yeah, look, you know, often when people pay more interest, it's because they've got the wrong facility for their needs and they haven't spent enough time or energy getting to understand how it works. And it's important to know that the type of facility that you've gotten and how it works and like overdrafts by actual definition are called come and go facilities. The overdraft is the name a major bank gave them.
but they were a come and go facility, which means you come to the account and then you go. You pull, you push, you pull, you push. It's never designed to have hardcore long -term debt in an overdraft. And people that have them, if you're listening, time to call me and get it sorted because that one will never go away if you don't do something about it because it's an evergreen line of credit, which means that you don't make principal repayments on it unless you make principal repayments on it. So yeah. Yeah. So.
Trudi Cowan (07:45.871)
Yeah.
Trudi Cowan (07:50.775)
Mm -hmm.
Sarah (08:06.64)
Some of the reasons that you might be offered a higher interest rate other than you not planning so that you get the lower interest rate, you may have bad credit. Bad credit was our previous episode and there may have been implications that led to you receiving a default or a judgment or going into liquidation or perhaps you didn't understand the implications. As we've talked about against your credit rating when you do liquidate one company, if you still remain a director or even in your personal.
Trudi Cowan (08:12.847)
you
Yeah.
Sarah (08:36.688)
personal situation, personal name.
Trudi Cowan (08:39.759)
So I guess where that leads if you are in these types of situations, it's important to ensure that you're getting the advice about, okay, if I do this in my business, if I take this liquidation, what's the ongoing implication going to be from a lending perspective? So yes, there's going to be, yeah, you know, there's going to be tax implications and accounting implications and various legal implications, but there's also going to be implications on your finance. And so making sure you're getting that holistic advice that's covering off.
Sarah (08:57.072)
before you liquidate, preferably.
Sarah (09:04.72)
Yeah.
Trudi Cowan (09:09.551)
everything becomes really important in some of those circumstances.
Sarah (09:11.152)
Yeah.
Agreed completely. Another one we did discuss as well, which might impact your credit and your ability to get a cheaper interest loan. This is more related to personal lending or home loan consumer lending. It can still impact business lending, but too many credit inquiries. If you've got online and you've just hit apply for a loan or see how much I can borrow and you've ticked the box for run my credit file or the you've completed the privacy statement and you haven't read it, which has a section in it which says,
you give us permission to run your credit file as part of submitting this application. Even if they haven't called it an application online, it often is an application. So read what you commit to. That can actually impact your ability to get cheaper finance. And as I said, it's more consumer related in the business space. We see that more around express.
Trudi Cowan (09:46.479)
Yeah.
Sarah (10:09.188)
lending for cars, for example, you no longer qualify because your credit score, the business's credit score has dropped below 600. So that's sort of where we see it.
Trudi Cowan (10:10.903)
Mmm.
Trudi Cowan (10:16.303)
And I know that we've spoken in the past about clients that have just wanted to know they could get the finance, but they didn't need it for six months because the car wasn't coming for quite some time. And you sort of had to try to advise them of let's not put that inquiry in just yet because we don't want that to be a note on your file when you don't actually need the money yet.
Sarah (10:33.552)
Yeah, especially if they're in growth stage and they may have need for other finance or other equipment because they're going to become a credit file inquiry in their own right with the facility when the new facility for that particular asset comes in. So like, yeah, if you're looking at buying a truck and the truck is on order at the moment, which they are 12, 24 months, 36 months minimum, especially for some of the larger vehicles. Yeah. Often I say, hold off on the, like I do a quick analysis on the business.
Trudi Cowan (10:42.223)
Yeah.
Mm.
Trudi Cowan (11:03.351)
Yeah.
Sarah (11:03.504)
And I would say hold off on the file inquiry until we're closer to a delivery date within three months of the delivery date, because they usually only last three months, those applications. So we want to make sure that you're within the brackets of the inquiry, not impacting your score unnecessarily. So yeah.
Trudi Cowan (11:20.911)
which again comes back to timing and planning. Yeah, and getting that right advice from a broker who knows what they're doing to make sure that you're only putting in the inquiries that are absolutely necessary.
Sarah (11:23.888)
Yeah, of course it is.
Sarah (11:33.232)
Yeah, and look, there is also the adage that some brokers will just run the file to get the deal in their system and to make sure that they try and, I suppose, lock you in as a client. And I can see why they do that from a business perspective too. That's not how I operate though, because ultimately I don't chase you as a client. You either want to work with me or you don't, right? So if I'm telling you to hold off on your credit file, it's for your own best interest.
Trudi Cowan (11:37.807)
Mm.
Trudi Cowan (11:53.839)
you
Yes.
Sarah (11:58.106)
It's not because I don't want to write you a loan. It's literally in your best interest for later on that we don't. And I operate in good faith, right? I do charge fees for certain types of facilities. And sometimes I will have you pay a fee to utilize my advice. In the meantime, you'll pay half upfront and then half on settlement. So that way I'm still getting my time covered and you're still getting the right advice. Again, this is why you pay for advice. Yeah.
Trudi Cowan (12:25.007)
Yeah. Now, the other big one that we often talk about and is often to your annoyance is when clients come to you and they're only just set up their ABN, whether it be for a business or a self -managed super fund. I know we've had that one in the past, which doesn't mean they can't get the loan, but obviously we'll have an implication on which loan they can get and interest rates.
Sarah (12:36.752)
Sarah (12:41.676)
Yeah!
Sarah (12:46.736)
It depends though, right? So circumstances change. It's not that it's an annoyance per se, but it's when they haven't investigated their options prior to making their decision that becomes complicated because it changes the type of finance that they can obtain in some circumstances. And if they just asked me to start with, I would have been like, yeah, blah, blah, blah. And then we would have had this solution for them much easier. I'm annoyed on their behalf because it's...
Trudi Cowan (13:14.829)
I'll never.
Sarah (13:16.272)
It's, it's hard, it's unnecessarily harder than it needs to be because they didn't ask the question three months before. Yeah. Whereas I've had a client recently that's in his planning stage and he's come and he's asked all of his questions and I'm like, this is fantastic because it means if and when he ever needs finance, everything will be done in a timeline that will meet his needs rather than us trying to put square pegs in round holes and jam them in there with a mallet just to try and achieve an outcome.
Trudi Cowan (13:20.591)
Yeah. Yes.
Trudi Cowan (13:30.829)
Mmm.
Trudi Cowan (13:41.615)
Yeah.
Sarah (13:45.296)
that potentially could have been avoided with a little bit of planning. You know I love planning.
Trudi Cowan (13:48.303)
Yeah, and as we sort of discussed in one of our previous episodes, it's worth paying for that advice up front to make sure that down the track it doesn't end up costing you more.
Sarah (13:53.936)
Yeah. Yeah.
Absolutely.
Trudi Cowan (14:00.079)
So some of the other things, what else have we got on our list? Where is refinancing ATO debt coming? Can that sort of start to cause your financing costs to become a bit higher? I know that's one that's sort of come up a lot in various conversations of recent times.
Sarah (14:02.384)
Sound like a parrot when we say this sometimes.
Sarah (14:09.872)
No, can't do it now.
Sarah (14:20.016)
It's one that is challenging, really challenging because if you've got consistent long -term ATO debt, you are telling me whether you like this or not, you may find this upsetting, but you are telling me that you cannot manage your business. And yes, there are implications that may have been outside of your control, but the ATO expects you to have foreseen them because they don't care that you can't manage your business. They want to be paid.
for the money that you were making on paper and that you were declaring. And so from a lending point of view, it tells us that you're not capable of meeting your liabilities when they fall due and these are statutory liabilities. So how do we have faith that you'll meet the liabilities of the lender when they fall due? And so it's behavioral. And I know there are circumstances that, especially in the current marketplace, you may have had a booming year last year.
Trudi Cowan (14:50.703)
Yeah.
Trudi Cowan (15:04.845)
Yeah.
Sarah (15:17.008)
And this year you haven't, so you've used the money that you would have had to have paid the ATO to prop your business up so you can keep trading this year. But that doesn't mean that the money to the ATO isn't due. And so often I get phone calls asking, I want to refinance the ATO debt for an unsecured business loan. It is pretty much a no unless you were looking at a lender that has an interest rate of 28 % annual percentage rate. So APR plus that's nearly 30 % of the cost of funds. So if you are...
Trudi Cowan (15:37.551)
Which is really hot.
Sarah (15:45.648)
borrowing $100 ,000 for 12 months, it will cost you $28 ,000 to refinance that from the ATO. And when the ATO has a much cheaper interest rate, go on an ATO payment plan. What's the ATO's interest rate at the moment? Do you happen to know exactly? Is it 12? I thought it was 12. Yeah, right. So if you look at that scenario, it's less than half what a lender is going to charge. And then the next argument I get is, but they want me to pay it off in 12 months or 24 months.
Trudi Cowan (16:00.527)
I feel like it was about 12, 13 percent.
Sarah (16:15.216)
Yeah, because it was due last year. So why would a lender give you that money for 36 months on a cheaper rate than the ATO? Like it doesn't make sense. Cost of lenders like us as business owners have costs of doing funds and there are risk categories associated with them. It's not a good risk. Why would you lend out the money unless you were making a butt ton of cash back on it? It's pretty straightforward when you look at it logically and take the emotion out of it and you operate from their side of the fence then.
your side of the fence. That said, yes, you can refinance ATO debt in certain circumstances, but they usually require you to refinance your personal mortgage and roll that debt in against your house. And again, don't love it. Don't love it at all. So again, planning, planning is the answer to that. Yeah.
Trudi Cowan (16:56.495)
which is not, not, not ideal, no.
Trudi Cowan (17:04.367)
And does just having ATO debt have impact on the rate you can get as well? I know that we often get asked, can you show a statement showing that we don't owe anything to the ATO? So does that impact on... Yeah.
Sarah (17:17.24)
Borrowing capacity, borrowing capacity, because the way the lenders service ATO debt is they'll take that debt and they'll service it across 12 months. For the same reasons we've just discussed, right? They want you, the lenders want you in responsible business management to have paid out that debt if you've incurred it, separate to the lending that you're doing, the debt has to have been paid out within 12 months. So if you have $100 ,000 debt and you're wanting to pay that out across, you wanted to get a new loan for something else,
That we can't do under an express product for equipment finance, for example, so you need an overdraft by stock that 100k divided by 12 is going to cost you eight eight thousand three hundred and thirty three dollars a month in repayments Plus the interest rate so then they're going to they're going to add an interest rate on the hundred K simple Calculation on APR of say 13 % so you're going add another thirteen thousand dollars
So they're going to have $1 ,083 plus the 8333. So they're going to sensitize your rate as an actual repayment of 9 ,416. And then the bank is going to apply their policy to it as if it was a normal personal or business loan of a 3 % buffer. So they're going to add, so suddenly the debt of $100 ,000 a year is really a debt of say like, you know, 125, 130.
Trudi Cowan (18:32.943)
Mm.
Sarah (18:43.088)
when they apply their sensitized buffer and then they'll make your, they'll calculate your ability to make repayments on that. Right. It's starting to become, and that's usually where I get stuck. It's really tight. It's the ATO debt. Like the rest of the client looks great, but the ATO debt kills the deal. So if you've got ATO debt, people say, yeah, but you can get a loan. Yes, you can get a loan with those second tier funders. And suddenly your interest rate will go from say 14 % unsecured with a major or a second tier.
Trudi Cowan (18:59.183)
Yeah.
Sarah (19:12.08)
28 % plus and I say plus because it is a plus someone does a 38 % right so
Trudi Cowan (19:19.151)
So, in the vein of trying to save you paying too much interest, talk to me about low interest rates when there's higher fees or where there are more attractive interest rates but there's higher fees.
Sarah (19:30.928)
Hmm, they're fun. There are other facilities. So often we'll see like invoice finance facilities or sometimes you can get an overdraft or a line of credit. So the same thing, pretty much the same thing. A line of credit doesn't sit on your personal bank account, like on your business's bank account. It sets us a separate facility, whereas overdrafts traditionally sit against the trading account. So they increase the limit on the trading account.
I actually prefer them separately because I think it's easier for a business to manage the debt repayments when they're separate. It also gives them a little bit more control of the facility than if it's on the trading account. Literally the moment you get paid into your trading account, the debt goes up and down. So there's interest implications of either of those facilities. But the lower interest products are usually a sales gimmick and then they whack you with fees. So I've seen some that have an interest rate of say 7%.
And then they have a drawdown fee of 3 % every time you draw down. So every time you draw down 10k, it'll cost you 300 bucks plus the interest rate of 7%. Whereas you could have potentially set up another facility that had just an annual package fee, a higher interest rate, but it doesn't bill you every time you draw down because it might not sound like a lot on $10 ,000, but if the facility is 250k, we start to talk different numbers, right? So 250k.
Trudi Cowan (20:34.383)
Mmm.
Trudi Cowan (20:52.751)
Well, even if you're drawing 10K down every month, which can happen, it adds up very quickly all of a sudden.
Sarah (20:56.08)
Yeah, yeah. Yeah, but if you need a 250k tranche or draw down, you're suddenly paying seven and a half K on that draw down, even if you only need it for three days. Right. And this is how do you use the facility? So sometimes I put people into an interest rate facility that's around 24 % because it gives them more flexibility with the facility because they're drawing down as they need it and they're repaying it.
Trudi Cowan (21:01.167)
Mm. Mm.
Trudi Cowan (21:11.767)
Yeah.
Sarah (21:24.4)
as they don't need it anymore, right? As quickly as they can. So yes, it's $24 ,000, sorry, 24 % as an interest rate. But in that same scenario, if they drew 250K down, they've paid usually about 795 to set up the facility and that's it. There's no additional drawdown fees, but the rate's at 24%. So they would pay 24 % per annum. And if they only needed it for seven days, they'd pay...
Trudi Cowan (21:24.579)
as quickly as I can. Yeah.
Trudi Cowan (21:32.653)
That's it, yeah.
Sarah (21:53.4)
250 times 24 .95 percent divided by 365 times seven days. This is literally how I work it out for my clients. They would have paid $1 ,196 in interest, not the seven and a half grand plus the interest bill, right? Per day. So the interest bill on 250 at 7 percent divided by 365.
Trudi Cowan (22:07.439)
is a lot less yeah yeah
Sarah (22:19.408)
The interest bill on seven days would have been 335 plus seven and a half grand. So you can see there's a massive difference in how you use the facility. The trick with something like that though, is if you don't pay it back, you're running 24 .95 % per day, right? And you get stung that way. So if you don't use the facility in the way in which it's set up and meant for, then yes, it will burn you and you will be paying more interest than you have to.
Trudi Cowan (22:32.207)
Yeah. Yeah.
Trudi Cowan (22:42.703)
Which is where it comes back to making sure you're getting the right advice and that you're actually understanding how the facility works, what the fees and the costs associated with the facility are, and how you should be using it. Yeah. Yeah.
Sarah (22:51.92)
But it's also about you having accountability and responsibility for managing your own debt and managing your facility. And I have set up these facilities for clients. We've talked this through, we've done their planning, and then they've just used it and it's become hardcore debt they've never paid it off. And so suddenly they have $100 ,000 debt level at 24 .95 % and we have to try and now refinance it usually against their house because they haven't managed the facility. This is why managing your cashflow.
Trudi Cowan (23:08.271)
I'm going to refinance it.
Sarah (23:20.72)
is the smartest thing that you can do in business. And I mean daily, not just like once a quarter. Daily. Know exactly where your money's going. Be anal about it. Like being really diligent about how you manage your money and where those bills are going to get paid by because you can have the best facility in the world, but if you're not managing it correctly, it's not going to do you any favors.
Trudi Cowan (23:25.199)
Mm.
Trudi Cowan (23:45.263)
I think the other thing that we haven't spoken about yet is also the term of your loans. I've seen people go and get car loans for five and six years, but they're not really intending on keeping the car for that long. So it's like, why have you made a facility that is so long, the term should be better matching.
Sarah (23:49.584)
Yes.
Hmm.
Sarah (23:56.292)
No.
Sarah (24:00.944)
Because people don't like repayments that are higher that might actually hurt them a little bit, have them have some sacrifice and some pain for the gain, right? This is why the problem with these type of loans is that is especially in the commercial space. There are some changes that have come through, but most commercial car loans or chattel mortgages, whatever the term is, the bank works out what its interest charge is going to be. And it bills you for that in the first 12 months. That's why you have an amortization curve or the mortgage curve.
that comes down by the end of the term and you've paid the vehicle off or the facility off.
Trudi Cowan (24:34.479)
So it doesn't matter if you paid off early, you still pay the same interest.
Sarah (24:39.088)
Correct. Yeah. Right. Which is why the first question I ask, which is why I'm different than if you went to a dealer or perhaps another broker is how long are you going to keep this vehicle for? And at the end, do you want to own it outright or do you want to make a balloon or a residual payment? You know, so do we want cheaper interest payments now, like cheaper repayments now? Or are you okay with a slightly higher repayment now knowing that you're going to have to come up with a lump sum at the end of the term?
and how long are you going to keep this vehicle for? Because obviously as well, if you're planning on rolling it over, we want to make sure that you don't own any debt more than the vehicle's value by the time you roll it over as well. So that scenario, say you want to roll it at three years, you want it to at least be worth the debt level that's on the vehicle. Now in the last four years, that's been okay because the secondhand car market has been booming. Prior to that though, it wasn't. In often instances,
Trudi Cowan (25:30.671)
Yeah, cause of healthy body.
Sarah (25:36.676)
especially where people took lower repayments. So they had it over five year term, but they rolled it at three. One, they incurred the interest for the full term upfront. And two, the car was worth less than the loan that was still due on it at three years because your term had been built across five. So these are the things, these are the questions you should be asking when you're looking at getting debt. And the same with business loans. Most business loans run on
Trudi Cowan (25:53.335)
Yeah, come on.
Sarah (26:05.968)
depending on who they're with and what they're for, five, seven, 15 or 25 years. 25 years is usually where you've allowed security against a house or another property that you own. 15 years is when you're a specialty business and the funder backs what you do and you're really strong in what you do. So think health, vets, doctors, sometimes even like osteopaths and physios, radiology.
Trudi Cowan (26:15.663)
Yeah.
Sarah (26:33.68)
that often lenders will, you know, they're a short bet, right? We need medical facilities, so it's not likely that they're going to go bust. So a financier will give you a 15 year, 10 to 15 year term unsecured on those. But most standard business loans are five years. Sometimes you can get seven, sometimes. So the thing is, is like, if you're using it to then purchase equipment, as opposed to getting an asset loan,
Trudi Cowan (26:37.743)
Yeah.
Sarah (27:01.808)
Is the equipment going to, it's the same argument, is the equipment going to be worth the value at the end of five years? And if you're using it to buy things like stock, stock is usually a three to 12 month turnover. So why are you getting a five year term to buy stock that you're going to have turned over within three to 12 months? Now here's the kicker with major banks. Usually you can't get a three year term, a three month term. You can only get one, two, three, four, five. They're like their whole year terms. So.
Trudi Cowan (27:07.567)
Yeah.
Trudi Cowan (27:14.511)
Mmm, I'd be in line for stock here.
Sarah (27:31.696)
to get sometimes the cheaper interest rate, you have to take the one year term. But then the next question would be, is a term loan then the right facility for you? Or should you have an overdraft or a line of credit? Right? Because remembering with a term loan, you pay interest the day that it draws down. There's usually no redraw on a business facility either. So if you take $100 ,000 out of the bank and you're only spending 50, you can't put $50 ,000 in to save interest. You'll pay interest on 100 ,000 from the day of the drawdowns.
Trudi Cowan (27:35.791)
One more time, yeah.
Trudi Cowan (27:41.135)
Yeah, have a good draft.
Trudi Cowan (27:48.815)
Mmm.
Trudi Cowan (28:01.743)
Yeah, sure.
Sarah (28:02.8)
So all of these things are really relevant, which lead us back to don't pay more interest than you should have or that you have to by seeking the right advice upfront. Yeah.
Trudi Cowan (28:09.967)
So let's finish off then with what's your top two tips to pay less interest? A little bit, a little bit. But give us your top, what's your top two tips?
Sarah (28:16.72)
Is everyone's head hurting by now? Because mine's a little bit sore and I do this every day. Ask the questions the moment you think you need finance. Plan it ahead based on that and seek quality advice. And I know that's a really like how long is a piece of string answer because where do you go to find the right advisor? Well, if it's not me and you don't want to work with me, I don't get offended by that. I will refer you to another broker that I know and trust that can assist you.
with your finance. Trudy also has other contacts and the same goes for if it's an accountant, if it's a financial planner, if it's a lawyer. Yeah. And I want to point out again is that often financial planners don't actually deal in business finances. They usually deal specifically in your personal finance and investment portfolio. So if you're looking for assistance around the financial management, not from your accountant, that's also me.
Trudi Cowan (28:54.222)
they would all have referral contacts of someone they could put you into that they trust.
Sarah (29:15.056)
because I do that type of stuff under my Helix planning hat, not my SFA loans hat, right? And you can see how they go hand in hand though, because of that. So two top two tips, get advice. Well, do something about it as soon as you think you might need the, you know, the facility and then get some good advice and you will have to pay for it. And that's just part of cost of doing business. So.
Trudi Cowan (29:15.375)
Mm -hmm.
Trudi Cowan (29:39.183)
I totally agree and I think as a final word, if you do have any form of finance in your business at the moment, it's a timely reminder to make sure that you're reviewing it and understanding what that finance is and whether you're using it in the way that it should be used.
Sarah (29:50.032)
Yeah, using the facility properly. Yeah, absolutely. All right, guys, I think that's more than enough brain explosion for today. If we always say again, if you've got any suggestions for us, let us know and please feel free to share our podcast with your friends and business colleagues. We are growing pretty quickly, which is amazing. It's really exciting for us. But any little bit helps us get our message out there. And we really appreciate you doing so.
Trudi Cowan (29:57.101)
Mm -hmm.
Trudi Cowan (30:16.239)
Thanks everyone.