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Bigger Isn’t Always Better: Choosing the Right Short-Term Finance Amount

There are good reasons why you have to put a lot of thought into how much you borrow. This article looks at why going for the most that you can get isn’t always the best option.

It can sometimes feel like taking out finance is a bit of a balancing act.

If you don’t borrow enough, you can’t pull yourself out of trouble. But if you borrow too much you have to work harder to clear the debt. The larger the sum, the more you have to pay in interest.

It’s the fear of not having enough that causes many people to try to get as much as possible from short-term finance.

But that isn’t always practical or viable, as one of our clients discovered.

Bringing the Development Project to Completion

Our client operated a small property development company. Having started as a two-man operation, the client had weathered the storm of a tumultuous property market.

For over a decade, they developed their experience and grew the company. Finally, they felt ready to take on a few larger projects.

But they find themselves in a situation where they needed to rely on short-term finance for a new project.

The Situation

In 2012, the client decided to buy a large site in Dundas, New South Wales. Assuming they received development approval, they could subdivide that site into four lots. On each, they intended to build a two-story house.

If successful, the project would provide substantial returns.

The company waited for two years before breaking ground on the job. During that time, they’d secured a $2.3 million construction loan from a major lender.


They thought they had everything ready.

Unfortunately, unexpected issues during the construction process set them back. The client believed they were $600,000 short of what they needed to finish. Worse yet, they couldn’t delay the project anymore as that would leave them further in debt.

They decided that short-term finance offered the answer.

Our Solution

A referrer pointed the client in our direction. We took a closer look at the situation and concluded that the client wouldn’t be able to access the full $600,000.

The client intended to use both a residential property and the development site as security on their loan. Unfortunately, the disposable equity from this wasn’t enough to secure what the client thought they needed.

But we came up with another solution.

In this case, we saw a lot of potential in the project. We decided to raise our Loan-to-Value (LVR) acceptance level to secure short-term financing for the client.

In the end, we helped them to secure a loan of $550,000.

The End Result

Our client happily accepted the offer. Within a week, they’d secured the short-term finance they needed.

Better yet, they found that they didn’t need the additional $50,000 that they’d originally wanted. The project went ahead to completion without them requiring any additional financing.

That meant $50,000 less to repay on their loan. Of course, they also saved money on interest payments.

There are two lessons in this story.

Firstly, there are some factors that can affect your borrowing power. Our client discovered this for themselves.

However, you also may not need the amount of money that you think you do. Again, our client discovered that $550,000 covered their needs rather than $600,000. That means it’s crucial that you consider your circumstances before making a decision.

Now, we’re going to look at some of the factors that affect your borrowing power.

The Factors That Affect Borrowing Power

It’s crucial that you manage your expectations before you start your search for short-term finance. Several factors can limit (or boost) the amount that you can borrow.

These include the following:

  • Your Current Commitments and Income. The amount of debt that you currently have will affect how much you can borrow. Some lenders may even reject an application based on the fact that you already have a lot of debt. Your income also plays a role. Lenders want to see that you’re able to make your repayments through your current income.
  • Your Credit Score. Bad credit can prevent you from accessing some forms of finance altogether. Issues such as late payments, multiple loan applications, and defaults could come back to haunt you. Thankfully, there are lenders, such as Max Funding, who can help those with bad credit. Still, your credit score has an effect on your borrowing power.
  • The Type of Finance. The type of finance you try to access can also have an effect on your borrowing power. For example, it’s likely you’ll be able to borrow more through long-term finance than short-term finance. However, you’ll also face tighter criteria and end up paying more interest over a longer period. Sometimes, it’s better to choose a different type of finance than you originally envisioned.
  • Your Existing Assets. In our client’s case, their existing assets played a role in determining how much they could borrow. The client put up both a residential property and their development site as security. This enabled them to access $550,000. Most lenders will look at your assets and how you can use them to determine your borrowing power.


Each of these factors play a role when you’re looking for short-term finance. Depending on your situation, you may find your borrowing strength limited by at least one of them.

However, it’s also possible for each of these factors to play in your favour. For example, you may have a clean credit report that makes a lender more confident in your ability to repay. This means they’re more likely to offer you a higher amount.

The Things to Consider

Taking the above factors into account can help you to figure out how much you can borrow.

The question now is whether you should borrow the maximum amount. Just because you can doesn’t mean that you should.

There are several things to consider before making your decision.

First is the most obvious one.


Do you need to borrow the maximum amount to help you with the issue?

Let’s say you can access short-term finance of $200,000 for a problem that’s only going to take $100,000 to fix. You may feel tempted to take the extra money to use as an emergency fund in case something else goes wrong. But you’ll have to make repayments on that money too.

Usually, it’s best to only borrow what you need.

There’s also your current finances to consider. You may have other loans and lines of credit that you need to repay. You also have to consider your income and any other expenses that you have.

Is taking out a larger loan going to make all of your repayments too much of a burden?

It may be better to take a smaller loan until you have your finances in order. Once you’ve done that, larger sums of short-term finance become an option.

You also have to consider the interest rates and other fees attached to the loan. You may be able to access a huge sum. However, you need to ensure it doesn’t come with strings attached. A large interest rate can cause major problems later on down the line. You may also find that you can’t make early repayments.

Always read the contract carefully before signing anything. Sometimes, it’s better to go for another option rather than tying yourself into an unfair loan just because you can get a lot of money.

Your personal and business circumstances play a role in your decision. Consider them carefully rather than just choosing the option with the biggest number attached to it.

The Final Word

Choosing the highest amount possible for short-term finance can come with some pitfalls. You may find yourself struggling under the burden of debt that you create. What makes this even worse is that you may not have needed such a large loan in the first place.

You need to know the factors that affect your borrowing power and the things to consider before making a decision. Try to put yourself in as good a position as you can so you can access the best short-term finance offers.

After that, look at your circumstances to determine which of those offers actually works for your business. Look to the future and how you’ll handle the repayments, as well as considering the sum you need right now.

With a little help you can find the right balance. Max Funding can help you to make your decision. Better yet, we provide short-term finance that offers all of the following:

  • Pre-approval within five minutes.
  • Flexible approval criteria
  • Tax-deductible interest.
  • Loan repayment periods of up to 36 months.
  • Financing for people with bad credit.
  • Low-doc loans.
  • Early repayment.
  • The ability to borrow anywhere between $1,000 and $1 million.

You just need to get started. Apply now to find out how much you can borrow. After that, we’ll work with you to ensure you get the finance that suits your circumstances.

Bigger Isn’t Always Better: Choosing the Right Short-Term Finance Amount was last modified: November 13th, 2018 by Tammy Richards


Finance Expert, Writer, Entrepreneur

Tammy Richards is a passionate finance expert who is also a writer and business owner. With over 10 years of experience as a finance expert, Tammy wants... read more

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