Key financing options for your small business clients

Finance is all about enabling businesses to achieve their goals. The type of finance they get depends on what those goals are.

But what options are there, and what do they allow businesses to achieve?

[Button: Download the full Finance Comparison Guide]

Download the full Finance Comparison Guide

1) Overdraft

An extension of a businesses bank balance, allowing it to go into negative funds to manage daily cashflow needs. 

Pros

• Easy to use
• Complements other bank finance options
• Low cost

Cons

• May not cover all cashflow needs
• Takes time to arrange
• Significant fees for unarranged overdrafts
• May require property as security

2) On-demand finance

A user-friendly version of invoice financing (see below) that’s available when required to promote better cashflow. Businesses can essentially get invoices paid immediately, and pay no fees when they don’t need it.

Pros

• Flexible use, only when needed
• Immediate – funds can be received within minutes of applying
• Paperless application through accounting software

Cons

• Limited to the value of invoices
• Not suitable for business capitalisation

3) Invoice finance (Factoring)

Cashflow finance that allows businesses to be paid for invoices immediately, rather than waiting for customers to pay them. 

Pros 

• Easily available, without requiring security
• No need to chase late paying customers
• Easy administration through accounting software

Cons

• Loss of control of business relationships
• Involves telling customers and having them repay the finance company
• Complex fee structures
• Inflexible – must be used for all invoices

4) Credit cards

Business credit cards make funding available up to a set limit, and are easy to use for online purchases.

Pros

• Easy to get and easy to use
• Attractive rewards schemes

Cons

• Compound interest can quickly stack up
• Limited funds available that may not cover business expenses
• Makes businesses vulnerable to credit card fraud 

5) Term Loan (Secured)

A form of capitalisation finance that’s repaid over an agreed period. The business is required to put up collateral, usually in the form of property.

Pros

• Typically a low cost finance option
• Ideal for funding growth projects
• Predictable repayment plans

Cons

• Small businesses may not meet strict approval criteria 
• Requires property as security
• Lengthy application process
• Fortnightly repayments that may not sync with monthly invoice income

6) Term Loan (Unsecured)

Capitalisation finance that doesn’t require any security. It carries more risk for the lender, so comes with higher fees.

Pros

• Grants access to a lump sum of money
• No collateral required
• Quicker application that doesn’t require assessment of security

Cons

• Higher costs
• Fortnightly repayments that may not sync with monthly invoice income

7) Equipment finance

Loans designed to enable businesses to invest in or upgrade equipment and assets, such as furniture, machinery, tools, vehicles, appliances and more.

Pros

• Built in collateral with the equipment that’s purchased
• Lower risk, and lower cost
• Equipment enables business growth

Cons

• Equipment depreciates in value
• Lending amount may not cover the cost of specialised equipment
• Only available for the purchase of specific assets

For more information about the common forms of business finance, download the full Finance Comparison Guide.

Frequently Asked Questions