Which lending option is right for my business?

There are five common options for business finance – credit cards, overdrafts, loans, asset finance and invoice financing. The right choice for you will likely depend on your business and what you’re looking to fund.

First, ask yourself why you’re looking to borrow. Some typical reasons may be to:

• Pay for business expenses
• Manage business cash flow
• Purchase a property or business
• Purchase a car or equipment
• Grow your business
• Comfortably maintain day-to-day operations

It’s important to consider which financing option might be right for your business. Here are some of the types of finance to consider:

Business credit cards

A business credit card can help cover immediate or ad hoc expenses. With credit limits typically extending to $50,000, they can be a good way to access funds, fast. Some cards might also earn you points for your business’s spending that you can redeem on a wide range of gift cards, merchandise and flights.

However, if you’re looking for a permanent solution to help manage cash flow, a credit card is generally not the best option. Rates on business credit cards are generally higher than other financing options – which means you could end up paying a lot more in interest. Credit cards typically have annual, cash advance and late payment fees, so make sure you factor that in when deciding which finance option to use.

Business overdraft

Another way to cover unexpected expenses is through a business overdraft facility. This is linked to your business transaction account, allowing you to access extra funds (up to your approved limit) when your account balance reaches zero.

You’ll have to pay interest when your account drops below zero. Overdrafts typically involve an establishment fee, and a line fee charged on the full limit (even if you don’t use it).

Business loan

A business loan can be an appropriate option if you’re looking to grow your business, buy commercial property, or acquire a new business. Your loan is delivered in a lump sum, and you can typically tailor your repayment frequency (monthly or quarterly) to suit your cash flow.

You will generally need to provide security for your loan, and have the choice of a fixed or variable rate.

Business loans also have fees to be aware of, including establishment, monthly service and exit fees. With a fixed interest loan, if you pay it out early, you may be subject to an early repayment adjustment and administration fee.

Asset finance

If you’re looking for finance to fund a business vehicle or equipment, asset finance can be a good option. The loan is secured against the asset you buy – enabling you to pay off the vehicle or equipment while using it to generate revenue.

Depending on the asset financing product you choose, you may own the financed vehicle or equipment at the end of the term, or have the option to buy it out for an additional cost.

Invoice financing

CommBank now offers business financing through its Stream Working Capital facility. Acting like a secured overdraft, Stream Working Capital lets you tap into the value of your unpaid invoices – while you’re waiting for them to be paid. This could be a good way to both manage day-to-day cash flow needs, and/or grow your business, as the amount of capital available is linked to the amount of your unpaid invoices.

Stream Working Capital connects directly into your accounting software, providing a direct link to invoices in your system. You can then adjust the amount of credit you can access by nominating which customers’ invoices to use as a security.

Importantly, you only pay interest on the funds you use and the amount available to borrow scales up or down with the number of unpaid invoices coming into the business.*

With no complex fee structure, when it comes to working out how to manage cash flow effectively, Stream Working Capital’s flexibility may be suitable for both your business's short and longer term cash flow needs.*