Borrowing can get your business up and running and can help promote growth. You’ll find that lenders offer many options that can help minimise your borrowing costs. Keeping your own industry, cash flow, and business situation in mind, there are several choices that can help you find the money to grow.
The most convenient source of business financing can be from you. Your existing cash and investments can provide interest-free capital and your home or other larger assets can be used as borrowing collateral. Having a good credit rating can help secure favourable rates.
Term loans and lines of credit
Interest rates are relatively low, which means borrowing to invest in your business remains less expensive than it has been in the past. Two common forms of debt financing are lines of credit and term loans
A line of credit will allow you the flexibility to draw money when you need it. It is like an “open loan” that can be used whenever the situation demands, such as covering short-term expenses while you wait for money to come in from customers.
Term loans can be a good option when you require a lump sum of money to purchase a large asset, like a truck, office furniture, or an extra computer. In general, the time of repayment matches the useful lifespan of what you purchased.
More than 70% of small business owners use credit cards to fulfil some or all of their financing needs. Credit cards can be a convenient source of short-term cash, to buy equipment and cover day-to-day business expenses. You can borrow interest free by taking advantage of interest grace periods that many cards offer.
Credit cards can also give you instant credibility with suppliers, since they establish you as credit worthy and guarantee immediate payment. It’s easy to keep track of expenses and manage your cash flow with credit cards, as your spending activity is detailed in a monthly statement.
Keep in mind that lenders may look unfavorably on having multiple credit cards. To them it may mean you are in over your head. Try to keep your number of credit cards to two, which makes planning and bookkeeping more manageable and can minimise fees. Instead of applying for new cards when you need access to extra cash, consider having the limit on an existing card increased. Remember that it is also prudent to keep your personal and business expenses separate.
Growing your business needs a good understanding of your customers, market and competition. Do you know your customers and market? Do you know your competition? We’re happy to offer some advice to you. Come in and speak with us