Business Finance options

During the day-to-day running of a small business, sometimes working capital isn't enough to cover your funding needs—sometimes you get a huge order for goods that you must deliver ASAP or an emergency expense comes up and you can't draw funds on cash-at-hand.

To cope with fluctuations in cash flow your business can source funds from the following:

Overdraft facility

An overdraft facility can be attached to your business account and set with an agreed overdraft limit. An assessment of the credit worthiness of your business as well as security or collateral for the financing is usually required.

An overdraft facility provides working capital for the small business before income is received.

This type of financing should not be used for capital purchases or long term financing needs. Fees usually depend on the credit limit you arrange with the bank.

A line of credit

A line of credit, also known as an equity loan is an available account with an approved limit of funds that the borrower can draw on. As long as the balance does not exceed the approved limit, funds can be drawn at any time.

These loans are usually secured by a registered mortgage over a property. The business is required to make payments to at least cover the interest and fees on the loan.

Flexibility is the key advantage of a line of credit—like an overdraft it can be drawn as the need arises. You can use this facility for working capital requirements. Interest rates are lower than for overdrafts because the loan is usually secured against property—however if you fail to make interest payments you will be putting your property at risk.

Fully drawn advance

For funding long term investments such as equipment to expand production capacity of the business, you will need to get a fully drawn advance to get funds upfront.

Unlike a short term loan used to aid cash flow and fund the day to day running of the business, a fully drawn advance is a term loan—with scheduled monthly installment payments as well as monthly interest charges. The term loan is secured by a registered mortgage over a residential or commercial property or business asset.

If used for businesse investment, a fully drawn advance has the advantage of having interest fees fixed for a period, providing stability for repayments.