Growth and expansion

Funding a business expansion

Expansion consumes cash months before it produces any: more work means more wages, stock and materials leaving the business before the resulting invoices are paid. HomeSec funds it against equity in real property from $20,000 to $5,000,000, with no projections, no financials and an open term that does not punish a slow start.

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The arithmetic nobody warns you about

Growth is funded by the business before it is funded by the customer. Take on a larger contract and you pay the wages, buy the materials and carry the stock for weeks or months before the first invoice is even issued, let alone paid. Open a second site and the rent, the fit-out and the staff all start before the revenue does.

The consequence is counter-intuitive and it catches out good operators constantly: the most dangerous quarter in a business is usually the one straight after the best news it has had all year. A business growing thirty per cent needs roughly thirty per cent more working capital permanently tied up, and profit alone rarely produces it fast enough. This is why profitable, growing businesses run out of money, and why it is not a sign that anything is wrong.

Sizing it properly, before you borrow anything

1
Cost the whole thing, not the visible part.Fit-out and equipment are the obvious numbers. The ones that get missed are the stock the new site holds, the wages before it trades properly, the deposit and bond, and the months of overhead while it fills.
2
Work out how much longer the cash cycle gets.More work at the same payment terms means more money tied up at all times. That increase is permanent for as long as the higher volume continues — it is not a one-off cost.
3
Add a margin for the plan being wrong.Assume it takes twice as long to reach the volume you expect. If the expansion is only affordable on the optimistic case, it is not affordable.
4
Decide what repays the borrowing, and when.The new site's trading, a season, the contract's completion, a refinance once the accounts show the new shape. A lender who does not ask this is not being easy — they are being careless with your property.

The options, compared honestly

Source	Best for	The catch
Retained profit	Incremental growth with no deadline	Slow, and it means the opportunity has to wait for you
A bank facility	Established businesses with clean, current accounts and time	Serviceability on two years of history, a valuation, weeks — and a review date afterwards
Unsecured cashflow lender	Smaller amounts, quickly, with no property	Daily or weekly debits, a fixed term, and a materially higher cost
Equipment finance	Specific assets with resale value	Funds the asset only, not the working capital the asset creates the need for
Investors	Ventures where the risk should be shared	A share of everything the business ever earns, and usually a say in it
Secured against property	Where equity exists and the requirement is larger than an unsecured lender will write	Your property carries the risk if the expansion does not work

Why projections are not part of our assessment

Every expansion is funded on a forecast, and every forecast is a guess. A bank manages that by testing the guess — two years of accounts, a serviceability model, a valuation — which is a reasonable approach and a slow one. We manage it differently: by lending against equity in property and asking for a credible exit, so the decision does not depend on our being able to predict your revenue better than you can.

That has a practical consequence worth knowing. It means the answer does not change because last year was a rebuilding year, because you have just taken on a lease, or because the accounts have not caught up with the business. A person decides every loan. Every application is read by a Lending Manager and every credit decision is signed off by a person. We do not use artificial intelligence to assess, approve, decline or price a loan.

How much you can borrow

Take the property's value, multiply by 80% for residential security or 70% for commercial, and subtract what is already owing on it. What is left is roughly what is available, between $20,000 and $5,000,000. Several properties can be added together, and the borrower does not have to be the owner — companies, trusts and sole traders — including start-ups, with everyone on title signing. Up to 80% on residential and 70% on commercial. Lower on large acreage, and LVRs may reduce on properties worth less than $800,000.

From the call to the money

Tell us the deal

Amount, purpose, timing, the property and how the loan gets repaid. A Lending Manager gives you an indicative answer on that call — usually in minutes.

Minutes

Conditional approval

Photo ID, a rates notice and your most recent mortgage statement. That is the whole list, and it takes about fifteen minutes.

About 15 minutes

Funds released

As little as 24 hours from a clean, complete scenario. Paid where you tell us — to your account, or straight to the ATO.

As little as 24 hours

What it costs

Priced per file, on the property, the position, the amount and the exit. No rate is published, because a rate with "from" in front of it is the best file's number. How it is priced, and every fee that exists.

✓Upfront: a small commitment fee, payable only once your loan is conditionally approved

✓Valuation fee: none — we don't use valuers

✓Monthly or line fees: none — no monthly, line or account-keeping fees

✓Fee to extend: none — no rollover fees, legal fees or rewriting the loan to extend

Questions we get on the phone

How do I fund a business expansion?

The usual sources are retained profits, a bank facility, an unsecured cashflow lender, an equipment financier, investors, or a loan secured against property. HomeSec is the last of those: $20,000 to $5,000,000 against equity in Australian real property, with no financial statements, no projections and no serviceability test, funded in as little as 24 hours.

Why does growth make my cash position worse?

Because you pay for growth before it pays you. More work means more wages, more stock and more materials, all of which leave the business weeks or months before the resulting invoices are paid. A business growing at thirty per cent needs roughly thirty per cent more working capital tied up at all times, and that money has to come from somewhere other than the growth itself.

Do you need a business plan or forecasts?

No. We do not ask for a business plan, financial projections, financial statements or tax returns. That is not because they are unimportant to you — they are — but because they are not what we assess. The property, the purpose and how the loan gets repaid are.

Is it better to use equity in property or take an investor?

A comparison worth doing properly with your accountant. Equity funding costs a share of everything the business ever earns and usually a say in how it is run; debt costs interest and is finite. For an expansion with a reasonably predictable return, debt is almost always cheaper. For a venture that may not work, equity shares the risk — which is the point of it.

Can I fund a second site with it?

Yes. Fit-out, stock, equipment and the first months of rent can all be funded against property, which is the usual answer when a bank will not lend against a lease and a projection.

What if the expansion takes longer to pay off than I planned?

The term is open with no maximum and no fee to extend, which matters more on an expansion than on any other kind of borrowing. Expansions routinely take longer than planned, and a facility with a fixed end date turns a slow start into a refinancing crisis at exactly the wrong moment.

How much can I borrow to expand?

Set by the property rather than by turnover or projections: up to 80% of a residential property's value or 70% of a commercial one, less what is already owing, between $20,000 and $5,000,000. Several properties can be combined.

Should I expand at all?

Not a question a lender should answer for you, and be wary of one who does. What we can say is which expansions we see go badly: the ones funded entirely by debt with no margin for the plan being wrong, and the ones where the existing business was not yet paying for itself. An expansion should be affordable if it takes twice as long as expected to work.

Can I repay early if it works faster than expected?

Yes, at any time and with no penalty, and unused months of capitalised interest are rebated. Ad-hoc paydowns from $10,000 are available once the capitalised-interest period has passed.

Talk to a Lending Manager

Tell us what the expansion is, what it costs and what property sits behind you, and you will have an indicative figure on the call. 1300 93 83 87, Mon–Fri, 8:30am – 5:30pm Melbourne time.

Other ways businesses grow

Buying a business Buying a franchise Fit-out and refurbishment Buying equipment outright What a business is worth Releasing equity to fund it Buying commercial premises

Sixty seconds, no documents

See if you qualify in sixty seconds

Three short questions, no credit check to apply and no financial statements. A Lending Manager reads it and calls you back with a real answer — not a call centre, not an algorithm.

That's the HomeSec Advantage.

See if you qualify Call 1300 93 83 87Mon–Fri, 8:30am – 5:30pm Melbourne time

Reviewed by Jason Brockmuller, Joint Chief Executive