Finance adviser Matt Sommers from Optimise Finance shares his perspective on why the structure of business borrowing matters, the risks of focusing on immediate funding needs, and the value of taking a longer-term view when making financing decisions.
Securing business finance can feel like the hard part. But getting the money is only one part of a successful funding decision. What matters just as much is whether the loan continues to work for the business long after the funds have been received.
It's something Matt Sommers of Optimise Finance sees regularly. Businesses secure funding to solve an immediate problem or pursue an opportunity, only to discover that the terms of their borrowing create a new set of challenges down the track.
For Matt, the real value of good finance advice lies in understanding what a business is trying to achieve, then making sure its funding supports those objectives, both now and in the future.
A business needs additional working capital to purchase stock, cover wages or manage a cash flow gap. A short-term loan appears to offer a straightforward solution. And for some funding requirements, it may well be the right one.
But what if the immediate cash flow pressure is actually a symptom of something else?
Matt regularly encounters businesses where the underlying issue isn't a lack of access to short-term finance, but the way their existing debt has been structured. Property lending or other longer-term facilities might have repayment arrangements that unnecessarily constrain cash flow, leaving less available for everyday business operations.
Rather than examining those arrangements, the business takes on additional short-term debt. The immediate problem may be resolved, but the new repayments can create further pressure.
Part of the challenge is that short-term lending can be an attractive proposition for lenders, even when the repayment structure creates additional pressure for the borrower.
As Matt points out, "A lot of lenders will give you short-term money that gets repaid quickly because they deem it to be low risk. But their low risk is your high risk, because now you have to come up with the cash quickly."
That pressure on cashflow can leave a business with less room to manoeuvre, particularly if trading conditions change or unexpected expenses arise.
If the repayments become difficult to manage, refinancing may be considerably harder than securing the original loan. By then, the business's financial position may have deteriorated, making lenders less willing to offer more flexible terms.
Some clients come to Optimise Finance after finding themselves in exactly that position, looking for help to unwind existing lending arrangements that no longer work for their business.
Based on Auckland's Hibiscus Coast, Optimise Finance works with business owners and investors across New Zealand, often managing complex lending requirements spanning personal property, investment and commercial finance.
Understanding how those different financial commitments interact is central to Matt's approach. Rather than starting with a particular loan product or funding amount, he wants to understand the client's broader financial position and what they're working towards.
That might mean considering planned investments, future property transactions or how existing borrowing arrangements could affect the next stage of a business's growth.
Sometimes the right approach involves several funding transactions over time, with facilities established and repaid as different stages of a client's plans unfold. The objective is to manage those steps without creating unnecessary costs, risks or restrictions along the way.
It also means working alongside the client's other professional advisers, including accountants and lawyers, to understand the full picture.
"We can work quickly, but we want to work comprehensively," Matt says.
Taking that broader view at the outset can be the difference between funding that helps a business move forward and funding that eventually holds it back.
One of the more challenging aspects of business lending is that borrowers and lenders don't necessarily see risk in the same way.
A business owner might see considerable potential in an investment, with the opportunity to generate substantial returns. A lender sees something different.
While the business owner stands to benefit from the upside of a successful investment, the lender's return is generally limited to the interest and fees it receives. That difference shapes how each party evaluates the same funding proposal.
Understanding the lender's perspective can give business owners a significant advantage when seeking finance.
By recognising what a lender considers risky, businesses can think more strategically about how they structure and present their funding requirements. The aim is to find an approach that makes commercial sense for both parties, rather than simply asking a lender to accommodate the borrower's preferred arrangements.
Of course, presenting a compelling funding proposal also requires good financial information. Accurate, up-to-date accounts help lenders assess the business's performance andunderstand its financial position.
It's an important part of the value Matt brings to his clients: understanding the commercial objectives on one side of the table and the credit considerations on the other, then finding a way to bring the two together.
An established service business had an opportunity to acquire a valuable asset / business opportunity.
The bank/lender was comfortable with the broader position but could not accommodate the funding in the required timeframe or structure.
A funding solution gave the client room to proceed while maintaining flexibility around the longer-term position.
And when a funding proposal is well structured, it may also create opportunities to attract interest from multiple lenders, potentially improving the terms available to the business.
That same understanding of risk and commercial objectives shapes the lenders Matt chooses to work with.
For him, good business lending involves more than applying a set of credit criteria. It requires an understanding of how the business operates, what has influenced its financial performance and what its owners are planning to do next.
It's one of the things he particularly values about working with Line Capital.
Matt sees that focus on the trading business, rather than relying primarily on the assets available as security, as an important distinction.
He also appreciates being able to have direct, commercially informed conversations with the team, with questions that relate to the circumstances of the individual business.
As he puts it, Line Capital focuses on the business rather than "some sort of slightly abstract credit policy in the background that doesn't relate to a specific business".
The structure of the lending itself is another important consideration. Having seen the problems that unsuitable repayment terms and unexpected fees can create, Matt values straightforward loan structures, transparent pricing and the ability to repayearly without termination penalties.
Line Capital's conventional term lending structure provides an option for clients whose funding requirements are better suited to longer repayment periods, without necessarily committing themto retaining the debt for the full term.
For Matt, that flexibility matters. A business's circumstances can change, and its funding needs to accommodate those changes rather than become another obstacle to overcome.
There's another piece of advice Matt believes business owners should take seriously: don't wait until you need funding to start thinking about your options.
Consider a business with monthly operating expenses of $100,000. What would happen if it suddenly needed an additional month's expenses to cover an unexpected shortfall?
Would the owners know where to turn? What funding options might be available? Would they have the financial information needed to support an application? And perhaps most importantly, would they already have an adviser who understood their business?
These aren't questions that necessarily require an immediate lending application. Simply having the conversations, understanding the possibilities and establishing relationships with the right advisers can make a considerable difference when circumstances change.
It also demonstrates the kind of financial planning and governance that lenders value. A business that has considered its potential funding requirements and prepared for different scenarios is in a much stronger position than one trying to understand its options for the first time in the middle of a cash flow crisis.
For Matt, it comes back to making considered financial decisions rather than reacting to whatever problem happens to be in front of you.
"You can't predict unpredictable, but you can be ready for the unpredictable."
If you have a client funding requirement that doesn't fit neatly within the obvious path, talk it through with the Line Capital team.
