The benefits of decoupling personal and business finance

Is your business and personal finance wrapped up together? If so, now might be the time to consider ‘decoupling’.

Access to funding is critical for many small businesses. And, the reality is that traditional lenders don’t typically lend to businesses who don’t have an extensive trading history. As a consequence, many businesses have resorted to using their personal mortgage, a personal loan or credit card to fund their business, with the belief that doing so is a viable and cost effective alternative.

“Using personal credit sources to facilitate business funding has been born out of necessity for many small businesses, as banks – which historically have been the only source of finance – usually require the applicant’s house as security for the business loan,” says Nathan Watt, managing director of Watson & Watt, a Queensland-based accounting and tax advisory consultancy that specialises in working with small businesses.

Fast forward to the current landscape: small businesses are now in the enviable position of being able to access funding through the emergence of alternative lenders dedicated to enabling business growth or smoothing out cash flow challenges. This environment also provides a natural platform to separate personal and business finance – otherwise known as ‘decoupling.’

“The reality is, if you are running your own business, you should keep your business and personal finances separate,” says Watt. Particularly now. With interest rates at a record low, homeowners are in an enviable position to shop around to secure a competitive rate for their home loan.

Here’s three benefits of decoupling personal and business finances:

1. Access to better home loan rates

While a mortgage interest rate may seem attractive when compared to some business loan rates, you need to factor in the duration of the loan, too.

“While the mortgage rate may be good, paying off a business loan over 15 or 20 years will see that interest really rack up. On this note, considering the loan term is as important as the rate to ensure the true cost of the loan doesn’t skyrocket,” says Watt.

You can typically access more competitive rates when you ‘decouple’ your assets, as each asset can be reviewed independently, and the most appropriate product for each found.

According to Watt, “It’s always wise to review the rates you’re paying on any finance and see if there are better deals out there.

“When interest rates are cut, it makes sense to conduct a review,” he says.

For example, a mortgage taken out four or five years ago may have an interest rate of over 5% p.a., whereas an average home loan rate today can be found around 3.44% p.a. A 1.5% drop in a home loan interest rate would result in significant savings over the term of the loan.

2. Your home’s not exposed

The biggest drawcard for decoupling your personal and business finances, is keeping your personal and business assets separate, says Watt.

“When working with small business owners, I always advise them to keep things completely separate if at all possible,” he says.

“It protects your personal assets as well as keeping your finances neat.

“Ultimately, if you have your home tied up in your business finances, you are staking your home on the success of your business.”

3. It’s more tax efficient

Separating your personal and business finances makes it significantly more straightforward when it comes to tax time.

“If you have your personal and business finance intertwined, you have to work out percentages of what’s deductible and what’s not,” says Watt.

“If your finance is all in your mortgage, for example, it can result in it being less tax efficient as you’re being charged the interest on the principal over a far greater period of time than you would be if you take out standalone vehicle, equipment or business finance.”

Get advice

Now is a great time for small businesses to explore how to decouple their personal and business finances.

While it can be a complex task to undertake, your finance broker will be able to guide you through the process, and advise on the most suitable products and structure for your business and personal finance.

>> GET STARTED – To apply visit xpressbusinessloans.com.au/apply 

How Alternative Business Finance Works…

All you need is an ABN and 6 months in business to apply for a loan. Best of all you don’t need to provide financials or any security for loan amounts less than $150,000.

The amount you can borrow is based on the turnover [gross income/revenue] of your business, which is verified by your last 3 months of business bank statements.

As a general rule you can expect to borrow 100% of your monthly business turnover. For example, if you have $50,000 in monthly revenue you will qualify for a $50,000 business loan.

What you need;
– An active ABN [been in business 6 months]
– 3 months of business bank statements
– Minimum $5,000 in monthly turnover/revenue

Loan Features;
– Borrow $5,000 – $500,000
– Loan rates from .75% per month
– 100% Unsecured – No collateral required!
– Low Doc – No financials required!
– 3 to 36 month loan terms
– Cash flow friendly repayments [daily, weekly or fortnightly]
– Approved and funded in as little as 24 hours!
– No hidden fees
– No interest penalty for early repayment

>> GET STARTED – To apply visit xpressbusinessloans.com.au/apply 

For more details feel free to call 08 8451 1500 or email us back with your query.

Cheers,

Sam, Matt & Andy
​Urbantech Finance

PS. Remember, with just an ABN and 3 months of business bank statements you can borrow up to 100% of your monthly turnover. Borrowing money for your business does not get any easier than this!