Mortgages, Money and Me

Commercial finance – what is it?

Couple standing in front of organic food store smilingThere are several types of commercial finance that may help grow your business or keep it running efficiently day-to-day. Here’s an outline of some of them.

Business overdraft

An overdraft is linked to your business account. It gives you access to funds, up to an approved limit. Overdrafts can be either secured or unsecured. There are generally no regular repayments and interest is charged on the amount drawn. This may be helpful for covering short- term expenses.

Line of credit

A line of credit provides on-call access to funds that can be used to increase your working capital. These are generally secured facilities, and have a higher borrowing limit than an overdraft.
There are no fixed repayments and you’re charged interest on the amount drawn.

Commercial loans

A commercial loan is a medium- to long-term option. Financing is provided for a fixed period of time. Repayments are generally fixed and made at regular intervals over the term of the loan.
The interest rate can be either fixed or variable and is based on market rates. The loan is generally used to purchase equipment, commercial property or make improvements to your business.

Cash flow finance

Whether it’s called cash flow, debtor or invoice financing, this facility enables you to obtain financing for a proportion of your outstanding invoices. The financier purchases your invoices at a proportion of their face value, so you don’t have to wait for slow debtors. It can be an effective way to manage short-term fluctuations in your cash flow.

Business equipment finance

Asset or equipment finance is a way to purchase equipment and vehicles. The assets being purchased are used as security. Repayments are fixed over the term of the loan. A balloon or residual payment is common at the end of the loan. This financing can be in the form of hire purchase (where the financier owns the asset), a novated lease (for vehicles) or chattel mortgage (where you maintain ownership of the asset).

Commercial finance can be a smart way to maintain or build your business. For more information, give me a call!