Today, there are two types of unsecured credit facilities open to small business owner. Whether it is to be a business overdraft or a business installment loan, the choice would ultimately depend on the needs of your company and how the capital will be utilized.
If your company needs a safety net for rainy days, your best bet would be an unsecured bank overdraft facility. It is an excellent way to minimize your interest expense especially if the funds are used for a short period. This is due to the interest being calculated on a daily basis. However do take note that the interest rate is usually pegged to the board rate which fluctuates with time. Some banks even pay you preferential interest rates if your account has credit balances in it. Your current banker probably has offered you this facility before so take it. With the credit line being reviewed on a yearly basis take the maximum quantum offered. After all, there's no certainty that you will be getting the same or better deal in years to come.
On the other hand if your company is planning to expand, go with the unsecured business installment loan. This way you get to maximize your business potential without the fear of your sources of livelihood being taken away from you. Most banks do not restrict the usage of the funds thus the flexibility is a big bonus to any small business owner. You get to use the funds for working capital, purchasing of machinery and materials, payroll etc. The option to pay back between 12 to 60 months allows you time to reap the returns on your investment.
Every bank has slightly different policies on unsecured credit facilities for small businesses. I strongly encourage you to shop around for more information before deciding whether debt financing is suitable for your company and if so, which bank to acquire this source of funds from. Speak to your banker today to find out how to make debt financing work for your business.
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Joyce TM Leong is a consultant who helps companies with their business financing needs. She has written articles on business topics such as finance, marketing and customer retention management targeted at small and medium enterprises. For Joyce's free Business Tips newsletter, please visit http://www.businessfinancingpro.com
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Keywords: bank overdraft, best bet, business today, credit balances, daily basis, debt financing, financial burden, high interest rate, installment loan, interest expense, livelihood, overdraft facility, rainy days, safety net, short period
, small business owner, small business owners, unsecured business, unsecured credit, working capital.
