There are many different options when it comes to business finance in Australia without security, so it’s important to understand your options before diving into the application process. As well as comparing different offers right here with Savvy, any of the following finance types may be suitable for your business in different circumstances:
Standard business loan
As discussed, this is the most common option available to businesses with a basic structure of repaying gradually alongside interest and fees over a set term. Many businesses will consider this the best business finance for their needs.
Business line of credit
Lines of credit are different from loans in several key ways. Rather than handing the business operator a lump sum to manage and start repaying effective immediately, a lender will approve them up to a set limit on their credit line. This allows them to withdraw funds up to that limit whenever they’re needed and only pay interest on the amount used, adding greater flexibility to the process.
Lines are also revolving, meaning that, in many cases, they can stay open as long as they’re viable, saving the trouble of applying for finance whenever you need it. However, interest rates can be higher, meaning it may cost more for you to leave a debt outstanding on your account, and fees can be charged even if you don’t access the line in a given month.
Business overdraft
Overdraft facilities are similar in structure to lines of credit, except they’re attached to business transaction accounts as opposed to coming directly from a lender. This enables business operators to withdraw from their account beyond $0 up to a pre-determined limit. The process of applying and getting approved for this facility is similar to that of a loan or line of credit.
A key element of overdraft facilities is that, unlike lines of credit, they come without set repayment schedules. This means your business can pay off the debt at whatever speed you prefer, with only interest required per pay cycle. Because rates are also quite high for this type of finance, though, you’re better off clearing your debts sooner.
Invoice financing
Invoice finance is an alternative type of funding available to businesses who are seeking payment for outstanding invoices from their clients. There are two main types of invoice finance which are important to consider if you find yourself in this position as an operator:
Invoice factoring involves selling your outstanding invoices to an external organisation, which advances as much as 90% to 95% of their value to you. The remaining amount owed will be passed onto your business once the customer pays their invoice, with service fees deducted from that sum. In this way, invoice factoring isn’t a type of loan.
Invoice discounting is essentially a line of credit taken out and secured by the value of your outstanding invoices, which can enable you to obtain up to 90% of their value immediately. Whilst invoice discounting is a type of secured finance, you won’t need any assets to serve as collateral for the loan.
This content was originally published here.
