Debt financing has never been popular with small business
owners. I can understand why it is being avoided as if it
is a disease. It can become a financial burden with the
high interest rate that is pegged to unsecured credit
facilities. However do not discount debt financing, as it
can be a good way to raise much-needed funds for your
business.
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.
Most banks have 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. To find out more about how debt financing can
work for your business, speak to your banker today.
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Joyce TM Leong is a consultant who helps companies with
their business financing needs. For Joyce's free Business
Tips newsletter, please visit
http://www.businessfinancingpro.com
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