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Small Business Finance – What are your short term funding options? (Part 1)

October 12,2017
Small Business Finance – What are your short term funding options? (Part 1)

Small Business Finance - choosing the best solution

The search for the right business finance option can be a complicated and time consuming one. With so many new online lending tools available to SMEs, as well as the traditional banking and lending facilities, small businesses now have a myriad of choices. As with most important business decisions, choosing the most appropriate finance option should not be taken lightly.

It’s important to have a clear understanding of the options available, the advantages and disadvantages of each and the appropriateness for the context in which you’re taking the financing (whether it’s for purchasing new equipment, funding stock purchases, or discretionary purchases).

The information below is an overview of more common finance products that are available to Australian SMEs:

Business Line of Credit

What is a Line of Credit?

A line of credit is normally used to fund or finance working capital requirements, such as stock and inventory purchases.

The benefit of a Line of Credit is that you can draw on your approved, available limit as needed. Typically, as long as the balance does not exceed the approved limit, funds can be drawn at any time. This type of funding can often be secured by property or personal guarantees.

Repayments and Interest

Interest payments are typically monthly, and repayments are generally required to at least cover the interest and fees on the facility. If the Line of Credit is a revolving one, the available balance replenishes as repayments on the principal amount are made.

The customer will only pay interest on the amount of the facility drawn down.

Common Fees and Charges

Some banks or lenders may charge an application fee, “line “ or facility fees, undrawn fees and/or account keeping fees.

Business Overdraft

What is an Overdraft?

Overdraft facilities are a line of credit (linked to a business’ transaction account) that becomes available when you make a withdrawal or debit transaction from your business banking account, for an amount greater than the balance in the account.

The benefit of an overdraft is that you can continue to transact and withdraw, even when your account is low/empty, providing you with more flexibility in your cashflow.

Repayments and Interest

Overdraft facilities typically do not have a specific maturity date. Because the overdraft is “on demand”, the facility can be cancelled at any time. Interest is usually paid on a monthly basis, at a rate that is determined by your bank, in accordance with their risk profiling.

The customer will only pay interest on the amount of the facility drawn down.

Common Fees and Charges

Some banks may charge an application fee, “line “ or facility fees, and/or account keeping fees.

This information is general in nature and has not taken into consideration your personal or business objectives, financial situations or needs. businessloans.com.au is not making any suggestions or recommendations to you about a particular product.

 

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