Business is related to production and distribution of goods and services for the fulfillment of the needs of society. To improve efficiency and carry out various activities, business needs funds, which is known as business finance. Any business would get stranded unless there is sufficient fund available. Hence, a business has to look for sources to generate funds.
Finding financing in any economic climate can be challenging, whether you’re looking for start-up funds, capital to expand or money to hold on through the tough times. To help you find the money you need, below compiled are some common financing techniques and what you should know when pursuing them.
There are a variety of loans available in the market today that suit various needs. They can vary in the amount, loan term, interest rate, interest rate type (i.e. fixed or variable), fees and security. It’s best to check the product disclosure information carefully before applying, regardless of which product you choose.
An overdraft facility allows a business to write cheques or withdraw cash from your current account up to the overdraft limit approved. An overdraft facility can be attached to your business account with an authorised overdraft limit. The purpose of an overdraft facility is to provide working capital for the business before income is received.
Line of Credit
A line of credit or equity loan can provide access to funds by allowing the borrower to draw on an account balance up to an approved limit. As long as the balance does not exceed the approved limit, funds can be drawn at any time. You’re generally required to make payments to at least cover the interest and fees on the loan. Unlike a loan, however, only the money actually drawn on a line of credit is charged interest. As this type of loan is usually secured against property, interest rates tend to be lower than for overdrafts.
Fully Drawn Advance
A fully drawn advance is a term loan with a scheduled principal and interest repayment program. These loans are usually secured by a registered mortgage over a residential or commercial property or business asset. A fully drawn advance provides access to funds upfront and is used for funding long-term investments such as a new business or equipment that expands the capacity of the business.
A commercial bill is a form of Commercial Loan suitable for short-term funding needs such as inventory. A commercial bill offers a fixed sum advance and requires an interest charge to be paid periodically. The final amount is then paid at the end of the term. Commercial bills typically require some sort of security