Glossary

Business finance glossary

Plain-English definitions of the terms you will meet in Australian business finance. No jargon for its own sake, and no sales pitch: just what each term means and why it matters to your decision.

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Loan and facility types

Business loan

A business loan is a lump sum borrowed for a business purpose and repaid over an agreed term, with interest.

A business loan is the plainest form of business borrowing: the lender advances an amount, you repay it in instalments over a set term, and interest is charged on what you owe. It suits a known, one-off cost, a fit-out, a purchase, a project, rather than an ongoing gap in cash flow.

Business loans are either secured or unsecured, and that single distinction drives most of the difference in what you can borrow and what it costs. Business-purpose lending is also regulated differently to consumer lending in Australia, which is why a business loan application looks nothing like a home loan application.

Business loans

Debt consolidation

Debt consolidation is the replacement of several business debts with a single facility and a single repayment.

Consolidating can simplify administration and, where the new facility is priced better or runs longer, reduce the repayment burden on cash flow. It is most often considered by businesses carrying several short-term facilities at once.

Two cautions. A longer term can lower the repayment while increasing the total interest paid over the life of the debt, so compare total cost and not just the monthly figure. And exiting existing facilities early can trigger break costs. Whether consolidating actually helps is an arithmetic question about your specific debts, not a general rule.

Debt consolidation

Invoice discounting

Invoice discounting is invoice finance where you keep collecting from your customers yourself, often confidentially.

With discounting you retain the customer relationship and the collection process, and the arrangement can often be confidential, so your customers need not know the facility exists.

Because the financier is relying on you to collect, discounting usually requires stronger systems and a stronger balance sheet than factoring. It tends to suit larger, more established businesses with solid credit control.

Invoice factoring

Invoice factoring is invoice finance where the financier takes over collecting the invoice from your customer.

Under factoring, the financier manages the collection, so your customer deals with them rather than with you. That removes the credit control workload, and it is generally the more accessible of the two invoice finance structures.

The obvious consequence is that the arrangement is visible to your customers. Whether that matters depends on your industry: in some sectors it is entirely routine, in others it invites questions you would rather not answer.

Invoice finance

Invoice finance is funding released against invoices a business has issued but not yet been paid for.

Invoice finance, also called debtor finance, converts your receivables into working capital. The financier advances a proportion of an approved invoice up front and releases the remainder, less its fees, once your customer pays.

It only works where you invoice other businesses on terms. It does not apply to cash or card takings from consumers. Because the financier is largely relying on the quality of your debtors, a business with strong customers can sometimes access invoice finance when it would struggle to get an unsecured loan.

Invoice finance

Line of credit

A line of credit is an approved limit a business can draw on and repay repeatedly, paying interest only on the balance drawn.

A line of credit is revolving rather than a single advance. You have a limit, you draw what you need, you repay it, and the room becomes available again. Interest is charged on the drawn balance, not on the whole limit.

That makes it the natural fit for a business whose cash needs move through the year, seasonal trade, stock cycles, or waiting on customer payments. Most facilities also carry a line fee or service fee for holding the limit available, so the real cost is interest on what you draw plus that ongoing fee. Whether it works out cheaper than a term loan depends entirely on how much of the limit you actually use and for how long.

Business line of credit

Merchant cash advance

A merchant cash advance is a lump sum repaid as an agreed share of daily or weekly card takings rather than by fixed instalments.

Repayments flex with trade: when takings are strong you repay faster, when they are quiet you repay less. For a business whose income arrives through card terminals, that can align repayment with the actual cash coming in.

The cost of an advance is often expressed as a factor or fixed fee rather than an annual interest rate, which makes it hard to compare directly against a term loan. Convert it to a total cost over the expected repayment period before deciding, because the effective cost of a short, fast-repaying advance can be considerably higher than the headline suggests.

Merchant cash advance

Overdraft

An overdraft is a facility that lets a business transaction account go below zero, up to an agreed limit.

An overdraft sits on the trading account itself, so it absorbs short gaps automatically without you drawing anything down. It is the oldest form of business working capital and still one of the simplest.

Overdrafts are typically repayable on demand, meaning the lender can reduce or withdraw the limit, and they are usually reviewed annually. They suit short, frequent gaps rather than funding a purchase or carrying a balance for months.

Secured business loan

A secured business loan is borrowing backed by an asset the lender can recover against if the loan is not repaid.

Security is usually property, but it can be equipment, vehicles or another business asset. Because the lender has something to fall back on, secured lending generally allows larger amounts, longer terms and sharper pricing than the same business could get unsecured.

The trade-off is real and should not be glossed over: the asset is genuinely at risk if the business cannot repay. Where the security is your home, that risk reaches past the business. This is the single most important thing to be clear-eyed about before signing, and it is worth discussing with your accountant or adviser as well as with us.

Secured business loans

Term loan

A term loan is a loan with a fixed end date and a scheduled repayment plan that pays it off by then.

A term loan runs for a defined period, often between one and five years for business lending, and the repayment schedule is built so the balance reaches zero at the end of it. Each repayment covers interest plus a slice of the principal.

The strength of a term loan is predictability: you know the repayment and you know the end date. The weakness is rigidity. If the money you need moves up and down through the year, a revolving facility usually fits that shape better than a fixed schedule.

Trade finance

Trade finance is funding that pays suppliers for stock while it is being produced or shipped, before you have sold it.

Trade finance closes the gap between paying a supplier and receiving money from your own customers, which can be months when goods are coming from overseas. The financier pays the supplier and you repay once the stock has landed and sold, or on agreed terms.

It is commonly used alongside importing arrangements and can involve instruments such as letters of credit. Where the goods themselves form part of the security, the financier will care a great deal about what they are and how readily they could be sold.

Trade finance

Unsecured business loan

An unsecured business loan is borrowing assessed on how the business trades rather than on property or another asset pledged as security.

An unsecured loan is not backed by a specific asset the lender can sell if the loan is not repaid. The lender is relying on your trading performance, so it looks hard at revenue, the pattern of money moving through your accounts, existing commitments and your credit history.

Because the lender carries more risk, unsecured facilities usually cost more and run for shorter terms than secured ones. Note that "unsecured" is not the same as "no recourse": most unsecured business lending still asks the directors for a personal guarantee, and many lenders register a general security interest over the business.

Unsecured business loans

Asset and equipment finance

Asset finance

Asset finance is finance used to acquire a specific asset, usually secured against that same asset.

Asset finance covers equipment, machinery, vehicles and similar capital purchases. Because the lender holds security over the thing being bought, it typically prices better than unsecured borrowing and is often available to businesses that would find an unsecured loan difficult.

The structure matters as much as the rate, because chattel mortgage, lease, hire purchase and rental are treated differently for GST, depreciation and your balance sheet. That treatment is a question for your accountant, and it is worth asking before you commit rather than after.

Equipment finance

Balloon payment

A balloon payment is a larger final payment left at the end of a loan term, which keeps the regular repayments lower.

A balloon shifts part of the debt to the end. Your monthly repayment falls, but a substantial amount is still owing when the term expires and you must either pay it, refinance it, or sell the asset to clear it.

The risk to watch is the balloon exceeding what the asset is worth by the time it falls due, which leaves you owing money on something you cannot sell for enough to cover it. Set the balloon against a realistic view of the asset's value at the end of the term, not an optimistic one.

Chattel mortgage

A chattel mortgage is a loan where you own the asset from day one and the lender registers a security interest over it until the debt is repaid.

A chattel mortgage is the most common structure for Australian business equipment and vehicle finance. The asset is yours from day one and appears on your balance sheet; the lender secures its position by registering an interest on the PPSR, which is released when the debt is paid out.

Because you own the asset, the GST and depreciation treatment differs from a lease, and for many GST-registered businesses that difference is the deciding factor. Confirm the treatment with your accountant, as it depends on your registration, your accounting basis and how the asset is used.

Finance lease

A finance lease is an arrangement where the financier owns the asset and leases it to you for an agreed term, with a residual owing at the end.

You get full use of the asset and pay lease rentals across the term. Ownership stays with the financier until any end-of-term arrangement is settled, which usually involves paying out the residual value.

Leases are often chosen for their cash flow profile and their accounting treatment rather than for headline cost. Whether a lease or a chattel mortgage suits you is genuinely an accounting question first and a finance question second.

Hire purchase

Hire purchase is an arrangement where you hire the asset and ownership transfers to you automatically once the final payment is made.

Under a commercial hire purchase the financier owns the asset during the term while you have use of it, and title passes to you on the final instalment. It sits between a lease and a chattel mortgage.

Hire purchase has become less common in Australian business finance than the chattel mortgage, largely because of how each is treated for GST, but it still appears and is worth understanding when comparing quotes.

Operating lease

An operating lease is a rental arrangement where you use the asset for a period and hand it back at the end.

An operating lease is closer to renting than to buying. You never take ownership, and at the end of the term the asset goes back to the financier. It suits equipment that dates quickly or that you only need for a defined period.

Because you are paying for use rather than acquisition, the repayment can be lower than financing a purchase, but you build no equity and have nothing to show at the end. Over several consecutive leases the total outlay can exceed the cost of owning.

See also: Finance lease, Rental, Asset finance

Rental

Rental is an arrangement where you pay for the use of equipment for a period, with no ownership and no residual to settle.

Rental agreements are typically the simplest asset arrangement: a regular payment for use, often bundling maintenance or replacement. They are common for technology and for equipment that must stay current.

The simplicity comes at the cost of ownership. Rental payments are an operating expense rather than a path to owning an asset, which may or may not be what you want depending on how long the equipment stays useful.

Residual value

Residual value is the amount still owing on a leased asset at the end of the term.

Residual and balloon are often used interchangeably in conversation. Strictly, a residual belongs to a lease and represents the financier's estimate of the asset's end-of-term value, while a balloon is the final lump on a loan.

Residuals on leases may be subject to guidelines about what is reasonable for the asset type and term. Either way the practical question is the same: what will you do when it falls due, and will the asset be worth enough to cover it?

Costs, rates and fees

Amortisation

Amortisation is the process of paying a debt down to zero through scheduled repayments of interest and principal.

An amortisation schedule shows how each repayment splits between interest and principal across the term, and how the balance falls. It is the clearest way to see the true cost of a loan over its life.

The shape is always the same: interest dominates early, principal dominates late. Any structure that defers principal, such as an interest-only period or a balloon, lowers the repayment now and increases total interest paid.

Loan repayment calculator

Break cost

A break cost is a charge for ending a facility early, most often on a fixed-rate arrangement.

Break costs compensate the lender for unwinding a fixed funding position, and they can be substantial. They are the reason a refinance or consolidation that looks obviously better on paper sometimes is not once the exit is priced in.

Always ask for the payout figure including any break cost before committing to refinance. The number is specific to the day it is calculated.

Comparison rate

A comparison rate is a single rate combining the interest rate with prescribed fees, so two offers can be compared on a like basis.

The comparison rate exists because a low advertised rate attached to high fees can cost more than a higher rate with none. Folding the prescribed fees into one figure makes the headline harder to game.

An important limitation for business borrowers: comparison rate disclosure requirements are aimed at consumer credit, so you should not assume a business finance quote carries one. Where it does, it is still based on a standard example and not on your actual amount and term. Work out the total cost of each offer over its real term as well.

Loan comparison calculator

Establishment fee

An establishment fee is an upfront fee charged by the lender for setting up the facility.

Also called an application, origination or upfront fee. It may be payable at settlement or capitalised into the loan, and capitalising it means you pay interest on the fee as well.

On short facilities an establishment fee can be a large share of the total cost, which is exactly the case where comparing on interest rate alone misleads.

Factor rate

A factor rate is a cost expressed as a multiplier of the amount advanced rather than as an annual interest rate.

Short-term facilities and merchant cash advances are often priced this way. A factor applied to the advance gives the total repayable, and that total does not reduce if you repay faster, unlike interest on a normal loan.

To compare a factor-priced facility against an interest-bearing loan, work out the total dollars repaid and the period over which you will repay them. Expressed as an annualised cost, short facilities priced on a factor are frequently far more expensive than the number suggests.

Fixed rate

A fixed rate is an interest rate locked for an agreed period, so the repayment does not move during it.

Fixing buys certainty, which matters when you are budgeting tightly or when a facility is large relative to your turnover. Your repayment is known regardless of what happens to rates generally.

The cost of that certainty is flexibility. Fixed facilities commonly carry break costs if you repay early or refinance, and you do not benefit if rates fall. Ask what breaking would actually cost before you fix.

Interest rate

An interest rate is the cost of borrowing the principal, expressed as a percentage over a period.

A business loan rate can be fixed for the term or variable, and it may be quoted annually, monthly or even weekly depending on the lender and product. Quoting periods differ enough between products that comparing headline percentages alone is unreliable.

The rate is only part of the cost. Establishment fees, ongoing fees and any early exit costs all belong in the comparison. We are a broker, not a lender: rates and fees are set by the lender and depend on your file.

Principal

The principal is the amount borrowed, separate from the interest and fees charged on it.

Every repayment on an amortising loan splits between interest and principal. Early in a term most of the payment is interest; later, more of it reduces the balance. That is why paying a loan out early saves less interest than people often expect if the loan is already well advanced.

When comparing offers, be clear whether a figure quoted to you is principal alone or principal plus capitalised fees, because lenders differ in how they present it.

Variable rate

A variable rate is an interest rate that can move during the term, so repayments can rise or fall.

Variable facilities usually allow extra repayments and early payout with less penalty than fixed ones, which suits a business expecting lumpy income or planning to clear the debt early.

The exposure is that repayments can increase. Before choosing variable, it is worth checking that your cash flow would still cover the repayment if the rate rose meaningfully.

Security and guarantees

General security agreement

A general security agreement is an arrangement giving a lender a security interest over the assets of the business as a whole.

A GSA covers the business's present and future assets rather than one identified item, and it is registered on the PPSR. It is common even on facilities marketed as unsecured.

Because a GSA is broad, an existing one can block or complicate later borrowing from another lender. If you already have a GSA in place, say so early: it materially affects which lenders can help.

Guarantor

A guarantor is a person or entity who agrees to be responsible for a debt if the borrower does not pay.

A guarantor may be a director, a related company, or a third party. Their exposure depends on the wording of the guarantee, and it can be unlimited unless capped.

Anyone being asked to guarantee should get independent legal advice. That is not a formality: the consequences of a guarantee fall on the guarantor personally, and they often differ from what the guarantor assumed when signing.

Loan to value ratio

The loan to value ratio is the size of the borrowing expressed as a percentage of the value of the security.

A lower LVR means more equity behind the loan and less risk for the lender, which usually improves both the amount available and the pricing. Lenders set maximum LVRs by asset type, and they vary widely.

Valuation is the part borrowers most often underestimate. The lender values the security on its own terms, which can be more conservative than a market appraisal, and the LVR is calculated on that figure rather than on what you believe the asset is worth.

Personal guarantee

A personal guarantee is a promise by a director or owner to personally repay the business debt if the business does not.

Guarantees are routine in Australian business lending, including on facilities described as unsecured. Their effect is significant: they reach past the company structure to you personally, so a debt that the business cannot pay becomes your debt.

A guarantee can survive events you might assume would end it, including selling the business, if it is not formally released. Get legal advice before signing one, and get any release in writing.

PPSR

The PPSR is the Personal Property Securities Register, the national register of security interests in assets other than land.

When a financier takes security over equipment, vehicles or business assets, it registers that interest on the PPSR. The register tells a prospective buyer or lender whether something is already encumbered.

Two practical consequences. Buying second-hand equipment without a PPSR search risks acquiring something a financier can still recover. And when you pay a facility out, confirm the registration is actually released rather than assuming it.

Security

Security is an asset a lender can take recourse against if the borrowing is not repaid.

Security might be property, equipment, vehicles, or a general interest over the assets of the business. It reduces the lender's risk, which is why secured facilities generally cost less and can be larger.

Offering security is a genuine decision, not a formality. Understand precisely what is pledged and what happens on default before signing, and take advice where the security is your home or another personal asset.

Valuation

A valuation is a lender's assessment of what security is worth for lending purposes.

Lenders rely on their own valuation rather than a purchase price or an owner's estimate, and they may apply a discount for the cost and uncertainty of selling. A valuation that comes in below expectations reduces the amount available.

For equipment, age, hours, condition and how readily the item could be resold all feed into the figure. Specialised assets with a thin second-hand market are valued conservatively for exactly that reason.

Assessment and eligibility

Arrears

Arrears are payments that are overdue on an existing obligation.

Arrears on tax, rent, suppliers or existing finance all show up during assessment, and current arrears weigh more heavily than historical ones. Tax arrears in particular are something lenders ask about directly.

An arrangement in place and being honoured is viewed very differently to arrears left unaddressed. Disclose them: they will surface anyway, and discovering them late damages credibility more than the arrears themselves.

Credit file

A credit file is the record of a business's or director's credit history held by a credit reporting body.

Lenders check both the business and, very often, the directors personally. The file shows credit applications, defaults, judgments and payment behaviour, and lenders weigh it differently: some treat an adverse entry as close to a gate, others weigh recent trading more heavily.

Applications themselves leave a record. Several applications in a short window can read as distress and count against you, which is the practical argument for comparing before applying rather than applying repeatedly to find out.

See also: Default, Serviceability, Director

Debtor

A debtor is a customer who owes your business money for goods or services already supplied.

Your debtors, collectively your accounts receivable, represent work done but not yet paid for. Their quality matters: a large, reliable customer base is an asset, while concentration in one or two customers is a risk.

In invoice finance the financier is largely assessing your debtors rather than only your business, so debtor concentration and payment behaviour drive both availability and cost.

Debt service coverage ratio

The debt service coverage ratio is a measure comparing the cash a business generates against the debt repayments it has to make.

DSCR expresses earnings available for debt service as a multiple of the repayments due. A ratio above one means the business generates more than enough to cover them; below one means it does not.

Lenders set minimum ratios and they differ on how earnings are calculated, particularly around addbacks such as one-off costs or owner benefits. Presenting those addbacks clearly and consistently is often what separates a well-presented file from a declined one.

See also: Serviceability, Cash flow, EBITDA

Default

A default is a failure to meet the terms of a credit arrangement, which may be recorded on a credit file.

A default usually follows a missed payment left unresolved past a defined period and after required notices. Once recorded it remains on the file for a set number of years even after it is paid.

A paid or older default is a different proposition to a current unresolved one, and specialist lenders exist precisely because a clean-file test excludes many businesses that are perfectly capable of repaying. It narrows the field rather than closing it.

Low doc

Low doc is an application assessed on reduced financial documentation, typically using bank statements rather than full financials.

Low doc suits businesses whose formal accounts lag behind current trading, which is common for growing businesses and those whose tax returns are not yet lodged for the latest year.

Reduced paperwork does not mean reduced scrutiny. The lender still needs evidence the business can repay and will read your bank statements closely. Pricing often reflects the lower level of verification.

Serviceability

Serviceability is whether your business cash flow can comfortably cover the new repayment alongside existing commitments.

Serviceability is the core credit question, and it is about headroom rather than turnover. Two businesses with identical revenue can borrow very different amounts if one already carries heavy repayments.

Lenders test it in their own way, often with a buffer above the actual rate so the loan still works if conditions tighten. This is why a business can be profitable and still be told a particular amount does not service.

Borrowing power calculator

Turnover

Turnover is the total revenue a business generates over a period, before costs.

Turnover is a headline input to most lender eligibility rules, often as a minimum threshold. It is not the same as profit, and it is not the same as what you can borrow.

A business with high turnover and thin margins may service less than a smaller business with strong margins and no existing debt, which is why serviceability rather than revenue drives the outcome.

See also: Serviceability, Cash flow, EBITDA

Working capital

Working capital is the money a business needs to fund day-to-day operations, as distinct from funding a purchase.

Working capital covers wages, stock, suppliers and the gap between paying costs and being paid. Most business borrowing is for working capital rather than for acquiring an asset.

The right facility depends on the shape of the need. A recurring seasonal gap usually suits a revolving facility; money tied up in issued invoices points to invoice finance; a genuine one-off suits a term loan.

Process and paperwork

Accreditation

Accreditation is a broker's approval to submit business to a particular lender.

Brokers can only submit to lenders they are accredited with, which is why panels differ between brokers and why one broker may reach a lender another cannot.

Being accredited with a lender is not an endorsement of that lender, and it does not mean that lender will approve your business. Appetite is set by the lender and moves over time.

Our lender panel

Aggregator

An aggregator is a business that holds lender accreditations collectively and provides brokers with access to them, plus systems and compliance support.

Most Australian finance brokers operate under an aggregator rather than holding every lender accreditation directly. The aggregator negotiates the lender relationships, supplies the software used to lodge applications, and carries part of the compliance framework the broker works within.

For you as a client this is mostly invisible, but it is part of why panels differ between brokers: the aggregator a broker belongs to shapes which lenders they can reach.

Bank statements

Bank statements are the records of a business transaction account, and usually the most important document in a business finance application.

Lenders read statements for consistent revenue, the pattern of cash through the month, and whether the account runs healthily or lurches in and out of overdrawn. Consistency counts for more than a single strong month.

Most lenders now accept secure digital retrieval rather than uploaded PDFs, which is faster and reduces the risk of an incomplete set delaying assessment.

Commission

Commission is the payment a lender makes to a broker when a finance arrangement settles.

Commission is the normal way broking is paid for in Australia, and it means the client is generally not charged a separate fee for the comparison. It should always be disclosed.

Ask how a broker is paid and whether commission varies between lenders. A broker who explains this openly is easier to trust than one who avoids the question.

Conditional approval

A conditional approval is an approval subject to conditions that must be satisfied before funds are advanced.

Conditions might include a valuation, verified documents, proof of insurance, or confirmation an existing debt will be cleared. Until they are met, the approval is not final.

Do not commit to a purchase on the strength of a conditional approval alone. Read the conditions and be sure they are ones you can actually satisfy.

Covenant

A covenant is a condition in a facility agreement the borrower must keep meeting for the term of the facility.

Covenants can require maintaining a financial ratio, providing accounts by a date, or seeking consent before taking on further debt. Breaching one can trigger default even when repayments are up to date.

Covenants are more common on larger and secured facilities. Know which ones apply to you and diarise the reporting obligations, because breaching a covenant through simple oversight is avoidable and expensive.

Drawdown

A drawdown is the taking of funds from an approved facility.

On a term loan the drawdown is usually a single advance at settlement. On a revolving facility you draw repeatedly up to the limit, and interest normally applies only from the moment funds are drawn.

Some facilities allow staged drawdowns tied to progress, which suits construction and fit-out projects where costs arrive in stages.

See also: Line of credit, Settlement, Facility

Facility

A facility is the general term for a finance arrangement a lender makes available to a business.

Facility covers loans, lines of credit, overdrafts, invoice finance and asset finance alike. The facility agreement is the document setting out the limit, term, pricing, conditions and what constitutes default.

Read the facility agreement rather than only the offer summary. Conditions, review rights and default triggers live in the agreement, and they matter most at exactly the moment you would rather not be discovering them.

See also: Drawdown, Covenant, Line of credit

Finance broker

A finance broker is an intermediary who compares finance options across multiple lenders on a client's behalf.

A broker does not lend. They assess your situation, work out which lenders realistically have appetite for it, present your file properly and bring back options to compare. The credit decision always sits with the lender.

In Australia a broker is typically paid a commission by the lender when finance settles, which should be disclosed to you. 121 Brokers is a broker, not a lender, and may receive a commission from the lender if your finance settles.

Financial statements

Financial statements are the prepared accounts of a business, typically a profit and loss statement and a balance sheet.

Full financials are usually required for larger, secured or longer-term facilities, and lenders will often want the most recent year plus the one before it, sometimes with interim figures.

Where accounts are not yet prepared for the latest year, a low doc assessment based on bank statements may be available instead, though pricing typically reflects the reduced verification.

See also: Low doc, Bank statements, EBITDA

Lender panel

A lender panel is the set of lenders a broker is accredited with and can submit business to.

A panel typically spans banks, non-bank lenders and specialist financiers, because they assess businesses differently. A file declined by one can be perfectly acceptable to another with different criteria.

A larger panel is not automatically better. What matters is whether it contains lenders whose criteria fit your business, and whether the broker knows which ones those are before applying.

Our lender panel

Payout figure

A payout figure is the exact amount required to clear a facility in full on a given date.

A payout figure includes the outstanding balance, accrued interest to the date and any break or administration costs, and it is usually valid only for a short window.

You need a current payout figure before refinancing or selling a financed asset. The balance shown on a statement is not the same number.

See also: Break cost, Debt consolidation, PPSR

Settlement

Settlement is the point at which the finance is formally completed and funds are advanced.

Settlement follows approval and the completion of conditions, which can include signed documents, verified security, insurance and any registrations. Funds are advanced to you or directly to a supplier.

Approval and settlement are not the same event. Conditions attached to an approval must be met before funds move, and the gap between them is where most delays occur.

Tax and accounting

BAS

A BAS is a Business Activity Statement, the form used to report GST and other tax obligations to the ATO.

Most businesses lodge quarterly, some monthly. The BAS reports GST collected and paid, and often PAYG instalments and withholding as well.

BAS periods create a recurring cash flow event that catches businesses out when the money collected has already been spent. Lenders will ask about outstanding BAS liabilities, so it is better to raise them yourself.

Cash flow

Cash flow is the movement of money into and out of a business over a period, as distinct from profit.

A business can be profitable and still run out of money, because profit records a sale when it is invoiced while cash flow records it when it is paid. That gap is what most business borrowing exists to bridge.

Lenders assess cash flow as closely as profitability, because it determines whether repayments can actually be made. Showing a clear picture of your cash cycle strengthens an application.

Depreciation

Depreciation is the reduction in an asset's value over time, and the deduction claimed to reflect it.

Where you own a financed asset, as under a chattel mortgage, you generally claim depreciation on the asset and the interest component of repayments rather than the whole repayment. Under some lease structures the treatment differs.

Depreciation rules and any immediate write-off provisions change from year to year and depend on your circumstances. Confirm the current position with your accountant or the ATO rather than relying on last year's answer.

Director

A director is a person appointed to manage a company, and someone a lender will usually assess personally as well.

Business lending routinely looks at directors as well as the company: personal credit history, existing commitments, and usually a personal guarantee. Australian company directors also require a director identification number.

This is why a director's personal financial position can affect a company's finance application even where the company itself trades well.

EBITDA

EBITDA is earnings before interest, tax, depreciation and amortisation, a measure of operating performance.

EBITDA strips out financing and accounting effects to show what the business generates from trading. Lenders use it, often adjusted, when assessing larger or secured facilities.

Adjustments matter. Lenders may add back one-off costs or owner benefits, and they do not all treat them the same way, so the same accounts can produce different figures at different lenders.

GST

GST is the Goods and Services Tax, a broad-based tax on most goods and services sold in Australia.

Registered businesses collect GST on sales and generally claim credits for GST paid on purchases, reporting the difference through the BAS. Registration is required once turnover reaches the ATO threshold and is optional below it.

GST treatment differs between finance structures, which is one of the main reasons a chattel mortgage and a lease are not interchangeable. Confirm the treatment for your circumstances with your accountant or the ATO.

GST calculator

See also: BAS, Chattel mortgage, Finance lease

Instant asset write-off

The instant asset write-off is a provision allowing eligible businesses to deduct the cost of an eligible asset immediately rather than depreciating it.

Where it applies, the deduction is claimed in the year the asset is first used or installed ready for use, which can bring forward a tax benefit that would otherwise be spread over years.

The thresholds, eligibility rules and end dates for this measure have changed repeatedly and are subject to legislation. We deliberately do not state a figure here, because a stale number would be worse than none. Check the current position on ato.gov.au or with your accountant before making a purchase decision on this basis.

No terms match . Try a shorter search, or ask us directly.

Know the terms. Now see the numbers.

Understanding the vocabulary is the first step. Working out which structure actually costs you least is the second, and that depends on your figures rather than on definitions. Tell us what the business needs and we will compare across our lender panel.

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