When your business is starting out, you often need capital up front to buy profit-making assets.
A term loan will help you. It is repayable over five years and attracts servicing interest on the capital.
Deciding to buy your own business premises is one of the biggest and also potentially rewarding decisions you can make.
Property finance will help you shift from renting to owning your business premises.
Many business owners also choose to unlock equity by applying for an ordinary home loan in their personal capacity and using this for their business.
It is a long-term loan (typically to be repaid over 10 to 15 years) that uses property as security.
This is a cash advance that is only available to businesses that utilise point of sale (POS) devices.
The cash advance amount is determined from the historical transaction values processed through the device.
Repayments for the cash advance mirror the business’s daily POS transaction values and an agreed % of these transactions is automatically put towards repaying the advance.
An overdraft is a credit facility linked to your bank account, which allows you to draw down on your account at any time up to the approved limit.
While there are no set monthly repayments, the bank needs to see a regular deposit into the account.
Overdrafts can be set on:
- a permanent basis (i.e. the same limit stays in place as long as you adhere to the credit
- a reducing basis (i.e. every month the limit decreases); or
- a fixed-term basis (i.e. the limit is available only for a certain period, for example while you are
waiting for a sale to go through).
While there is a monthly fee charged to manage your overdraft, you pay interest only on the portion you use.
Debtor Finance is a form of credit that uses your debtors book as security.
Depending on the nature and quality of your debtors and the type of debtor finance you choose, you can unlock up to 80% of the cashflow that is tied up in your debtor book.
There are multiple ways to unlock cash from your debtors, some offering additional benefits such as better management and administration of your debtors.
A credit card offers a form of revolving credit while enabling payments (at POS devices or online). You can utilise this line of credit (up to the approved limit), as and when you transact on your card.
Different to an overdraft, you have a monthly repayment obligation of 5% of the outstanding balance. Credit cards offer up to 55 days free of interest, as long as the outstanding balance is settled in full on or before the due date.
Furthermore, some credit card purchases can be done on budget, which allow you to spread repayments over a long period – typically 6-60 months.
Asset finance is a type of instalment loan that uses a business’s assets as security. The loan is typically structured over period of 60 to 72 months, and requires fixed monthly instalments.
Examples of assets are vehicles, trucks or buses, as well as equipment and machinery, that have a second-hand market. This includes most ‘yellow goods’ and specialist medical equipment.
Assets that cannot be easily resold or have a limited lifetime (e.g. computers, printers, fridges or coffee machines) do not lend themselves to asset finance.