Using Lender Finance vs Savings Account to Grow Your Tradie Business
Buying more tools or a new car is essential to increase your productivity at work as a tradie. But should you use your savings or use lender finance to make business purchases?
According to financial experts, there is no one-size-fits-all answer to the cash-versus-credit question. Generally, it would depend on how much money you would lose in the process of supporting your business. If withdrawing a couple of hundred dollars from your bank account would not affect your savings because of healthy cash flow, then it’s all right to use your personal money to pay for business purchases. However, if doing so would drain your hard-earned money, it makes more sense to borrow money from a finance lender.
Here are more reasons why getting a business loan is wiser than using your own savings to grow your tradie business:
Spending More Than You Can Afford to Save
Getting a loan from a lender enables you to have more money than what you would have otherwise been able to save.
- This is beneficial if you want to make a major business purchase, like a car or equipment, even with insufficient funds.
- Repayment can be easy through affordable instalments over several months or years.
Saving up for your business purchases is restrictive.
- You can only afford to spend as much as you’ve saved.
- You would need to save a significant amount of money to buy a trailer van or other expensive assets, which may take years of hard work and sacrifices to accomplish.
Fast Cash for Urgent Purchases
Finance lenders usually have an easy application and fast approval process, giving you fast cash for urgent purchases and transactions. This is very helpful when you need to:
- Buy replacements for stolen tools and equipment
- Take advantage of a limited-time sale on equipment or vehicle
- Avoid a pending price increase on tools, car or property you want to buy
- Pay for unexpected expenses and bills
Using your savings to pay for urgent expenses is risky. Say you used your $30,000 savings to purchase a new trailer on a limited-time sale. The next day, a local company offered you a major landscaping job but you won’t get paid until the project is complete. With not enough money to buy plants and other landscaping features, you might not be able to give the client what they want.
It’s important to have sufficient bank money to support your business operations and keep your assets secure. “You could have the world’s best business idea, you can be smart, you can be a serious hustler, but if you run out of cash? Your business is gone. No cash, no business,” says Emily Chase Smith, author of The Financially Savvy Entrepreneur.
Comfort Instead of Lifestyle Sacrifices
With a car, equipment or business loan, you don’t have to make lifestyle sacrifices after paying for your purchases.
- The loan you get is calculated based on your personal finance profile and current financial situation.
- Often, lenders provide affordable rates and flexible repayment terms to suit your particular circumstance.
Using your own money to finance your business may put a strain on your personal life. If you run out of funds to cover your living costs, you may need to:
- Cut back on household expenses
- Cancel vacations and travel plans
- Give up recreational and educational pursuits
- Delay traditional family celebrations like wedding and christening
- Put on hold plans to save for your children’s college education or your retirement
Security from Debt and Bankruptcy
A loan helps you make necessary business purchases without touching your nest egg or retirement fund.
- Tapping into these funds early may require you to pay a penalty fee and taxes on the amount withdrawn.
- Taking a significant amount of money out of your nest egg could push you into a higher tax bracket.
- You could lose the compound interest in your savings, especially if you withdraw on a repeat basis.
- If your trade business fails due to poor cash flow, you could lose not just your tools and equipment but also your home and other personal possessions.
Building Up Your Credit Rating
Buying tools and equipment using loan money can improve your credit score. A high credit score will help you easily secure a loan for major future expenses, like a car or a home.
- If you borrow and repay loans successfully, lenders would assume that you’ll do the same in the future.
- If you are a first-time borrower, your credit score will improve over time with each monthly on-time payments.
If you have no credit history, you may have a hard time securing a loan simply because lenders have no means to measure your risk as a borrower.
Positive Lending Solutions helps tradies secure finances for various business needs, including equipment loan, car loan and small business loan. Call 1300 722 210 to talk to one of our expert finance brokers.