Six types of credit available to your SME - part one

Today there are a range of different credit providers and products on the market to help finance your business going forward. However, picking one that works for you can often be a challenging and confusing process. Different credit methods provide different benefits and you will find that some suit certain situations better than others.

Most importantly, you need to be fully aware what rate of interest you will be paying, as well as the timeframe and fees associated with the credit.

Below are the first three in a series where we'll cover six different types of credit your SME can use:

1. Overdraft facility

Overdrafts are a great short-term funding option to use when your business has an unexpected lean spell in cash flow. An overdraft allows you to spend more money than you have in the bank by essentially providing you with working capital before your income is received. However, it's essential to understand how you will manage your overdraft before spending too much money.

Overdrafts can be both secured and unsecured but generally speaking the fees will be determined by the amount that you can overdraft. A credit assessment will usually be required prior to determining if your business qualifies for an overdraft and the amount your business can overdraft in order to determine the viability of your business.

It's essential to remember though that an overdraft should not be used for high involvement capital purchases or long term financing need.

2. A line of credit

A line of credit is a flexible option that acts similar to an overdraft as it can be called upon as the need arises.

Generally speaking credit is secured by a registered mortgage on a property. Due to the security offered interest rates will be lower than overdrafts as a result. Line credits do however offer an element of risk, in that failure to make payments can put your property in jeopardy.

You will be required to make payments to at least cover the interest and fees on the loan.

3. A fully drawn advance

A full drawn advance differs to a line of credit and a bank overdraft in that you are provided with funds upfront and can use that funding to purchase long term investments. These loans, like a line of credit, are secured by a registered mortgage and are very rarely used as a short term funding solution to cash flow woes.

The major benefit of a fully drawn advance is that the interest rate is often fixed, meaning you can make repayments with certainty and stability. This type of credit is also ideal if you are looking for a way to raise more business capital.

For a consistent credit application process Dun and Bradstreet's Automated Credit Decisioning  may help.

Stay tuned for the next three types of credit for your business.

Connect with us to receive updates throughout the day:

Like us on Facebok Follow us on Twitter

Dun and Bradstreet AustraliaTop of page Dun & Bradstreet Australia Pty Ltd 2015 | D&B Small Business    *About Us    *Sitemap    *Advertise    *Privacy    *Terms & Conditions