Depending on how many employees work for you, the repayments on a business loan are typically smaller than all of your payroll obligations — this includes superannuation and PAYG — combined. If you get a loan to fund 12 months of your business, payable over a 24 or 26 month period, the repayments will be far easier to manage each month.
Interest is usually a tax deduction
Businesses are able to claim the interest from any business loan as a tax deduction, so even if the annual percentage rate (APR) adds a few additional thousands of dollars to your capital amount over the period it takes to pay the loan back, the interest will still go towards reducing your taxable income.
This is a more favourable option to delaying payment to your employees (illegal) and delaying payment of PAYG and superannuation withholdings, which could incur a Failure To Lodge (FTL) penalty, plus a general interest charge (GIC). Note: Fines and penalties cannot be claimed as a tax deduction and are therefore dead money.
Do your sums first
Don’t forget that, while a business loan to cover payroll for 12 months will be easy to repay initially, your business’s profits will need to improve substantially over the next year so that you can continue to meet your loan repayments AND your payroll obligations for that year.
Using Excel to work out your PAYG and super obligations is a great way for small businesses, with a small number of employees, to save money. It saves you having to purchase this extra module in MYOB or Xero, for instance, when you may rarely use it. Saving money for small business is crucial as often it’s these same small businesses that have trouble making payroll payments each week, fortnight or month — and then wind up incurring further fees from the ATO when they’re late with their reporting and payments. It’s a vicious cycle.
Get financing. There are lots of ways to do this, but a common method, particularly if you need access to funds quickly, is to get a short-term business loan. Many short-term business loans don’t require businesses to have a great credit score, and will offer funding of as little as $5,000 right up to $500,000.
You’d have between 3 and 36 months to pay back the loan, but you need to be aware — the annual percentage rates (APR) are usually high. Most lenders require the business to have been active for a minimum of 9 months, and have revenue of more than $75,000 per annum. However, if paid off quickly, these can be an alternative to incurring penalties — it will obviously depend on your business’ individual circumstances.
Keep on top of bookkeeping
If you stay on top of your bookkeeping, you’ll either reduce the likelihood that you won’t make payroll, or as a worst case scenario, be able to foresee the periods when you won’t be able to, and be able to arrange finance in time to cover it.
If you’re an independent contractor you’re a business owner
As an independent contractor, operating with an ABN, you’re effectively running your own small business (so working capital important), and that means you’re subject to some of the same reporting obligations for the ATO as other small businesses are. The only real difference is that as an independent contractor, your business model is a lot simpler to other ones.
For example, most independent contractors operate as sole traders, so while they have to withhold their own tax and manage their own superannuation contributions, they still pay the same rate of tax as an individual (or an employee) does, making them eligible to claim the tax free threshold, among other things.
But unlike an employee, an independent contractor has to bill their clients by issuing them with an invoice, and the simplest way to do that is to use a cloud-based accounting software. With the recent announcement that PayPal and QuickBooks had joined forcesto offer low-cost cloud accounting software which allows businesses to accept PayPal payments, I’d say QuickBooks is likely to become the independent contractor’s cloud accounting software of choice.
PayPal will Loan Money for Working Capital Based on Cashflow
On its own, the PayPal-QuickBooks syncing is a pretty compelling reason for every independent contractor to be using PayPal to accept payments from their clients, but there’s also another, better reason to be using PayPal: PayPal Working Capital.
Working Capital is PayPal’s latest foray into the small business money lending fray – complementing their other ventures, which include merchant services, card readers, and, of course, the QuickBooks deal – by offering business loans to businesses that already use PayPal to process their payment.
The application process is remarkably simple: use PayPal to accept payments, and you can apply for loan of up to 15 percent of the sales processed by PayPal in the last 12 months, up to a maximum of $85,000.
Repayments are made directly from your PayPal account, you decide the rate at which the loan will be repaid – 20 percent of each sale, for example – and are only paid when you are paid. There are no late fees or fees for missed payments, and you don’t pay interest on the loan – just one, simple fixed fee, based on your sales history and the amount you are loaned.
PayPal is selling their Working Capital service as the quick and simple way to grow your business, and it is. Suppose you need a new computer – or a couple of new computers – with a PayPal Working Capital loan, you only pay one fixed fee and you have the money in your PayPal account as soon as your application is approved. So here’s a thought..
Borrow money from Paypal at a fixed cost (not based on interest charges), pay it off from future sales and use it to make a capital purchase for machinery, equipment of a car and claim the cost of that asset purchase this financial year!
PayPal helps make you globally competitive
The real reason every independent contractor should be using PayPal to accept payment from their clients, though, is because it helps to make you globally competitive. With PayPal you can work with clients in different countries, without having to worry about whether they will be able to deposit money into your account, and what fees may be charged to your or your client that make you less competitive than other contractors.
Now that PayPal has inked a deal with QuickBooks, it also makes setting up a PayPal payment gateway and directly your clients to pay you with PayPal incredibly easy – just a few clicks of a button, in fact. This means, your clients can choose whichever payment method to pay your invoices, whether it’s by credit card, debit card or direct from their own PayPal account – so it’s not only easy for them, but quicker too.
And the quicker and easier it is for clients to pay you, the more likely they are to pay you on time, every time.