Six types of credit available to your SME - part two

There may be times in your business where for one reason or another you need to use credit to keep the ball rolling. In part one we looked at the credit options of an overdraft, a line of credit and a fully drawn advance. In part two we further discuss credit options and look at three additional types of credit available for your SME.

4. Secured/unsecured business loan

There are two types of different business loans thatexist, they are secured and unsecured loans. The major difference between the two is that with secured loans it is necessary to provide collateral and for unsecured loans it isn't.

The most important thing to determine when taking out a secured business loan is the type of interest you'd like to repay. If you want to have continuity in the repayments you make, a fixed interest rate is ideal, but flexible rates have the potential to save you some money.

As mentioned unsecured loans aren't backed by collateral, therefore interest rates for unsecured loans are higher as a result because they represent a greater risk for the lender. The essential thing is that you find a business loan that suits you.

5. Credit card

Using a credit card is a great way to separate personal and business expenditure. By separating what you spend personally from what your business spends you can more closely monitor the expenses relevant to only your business and can simplify things come tax time.

Be aware however, that when using a credit card as a form of payment for company expenses,this may not be the ideal option for smart business owners as there may be significant interest rates attached to the card. It's essential that you are careful with all purchases made and pick the right credit card for your business  or else you could be hit with a very large and untimely interest bill.

6. Leasing/Hire purchase

When making a purchase on an item such as; an office space, vehicle or computer, you may determine that it makes more sense to purchase the product short term.

Under a lease agreement the finance provider - or lessor - will be the one that purchases the asset and you as the lessee can then chose to lease it for specific payments over an agreed period. At the end of the lease, the asset is transferred back to the lessor with three options available:

  1. Buy the asset from the lessor
  2. Renew the lease
  3. Return the asset to the lessor

A hiring purchase agreement differs in that the hire-purchaser will obtain the ownership rights after the payment contract expires.

As highlighted, there are a range of credit options that exist for your business. In order for your business to remain successful it's important you carefully consider the operation you will be using the credit for and which is the best credit available. Using the wrong credit for the wrong operation can leave you vulnerable when repayments are due which can affect your credit rating as a result.

To check your personal credit report visit https://www.checkyourcredit.com.au/

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