In his weekly business banking post our CFO Greg Taylor talks about the range of funding options available to business.
A few weeks ago I talked about leasing and commercial hire purchase as two business finance options to consider. This week I thought I’d give you a quick run-down on the other options available to you.
Creditors are people or businesses your business owes money for goods or services supplied. By getting access to their goods or services before paying for them, you can generate income. You want to try and reduce the time between when you pay and when you get paid. It is effectively interest free finance but is short term only.
An overdraft allows the balance in your account to go below zero to an agreed limit. It is flexible but can be relatively expensive, depending upon the interest rate and other fees.
A business loan usually has a lower cost than an overdraft and is suitable for long term core debt needs. Those backed by real estate are cheaper than unsecured loans or loans backed by other assets. Residential real estate backed loans are the cheapest of all. Look for loans that offer redraw or offset facilities.
A credit card is expensive if you don’t pay it off at the end of the month but it can give you up to 55 days interest free money. It can be useful if your suppliers will give you a discount for immediate payment or if they require immediate payment. There are some low rate cards around.
When you rent equipment or premises the asset is off the balance sheet and payments and stamp duty are usually tax deductible.
Commercial bill lines can be secured or unsecured. They generally have relatively low interest rates but usually have significant minimum repayment sizes and fees. Rollover periods are inflexible.
You should be looking at these options to see which one or combinations work best for your business needs at this point in time. The right option changes as your business changes. Get some help from your accountant, business advisor or business banker.
This column is based on Greg’s weekly post in the Newcastle and Lake Macquarie Post.