Taking credit for your business
When it comes to covering fluctuating business expenses, there are a number of options available, writes Gayle Bryant.
Business owners fully understand the dilemma of incurring unexpected expenses. And a fluctuating cash flow often means that if a client is late paying an invoice, there may be a temporary shortfall in funds to pay for other expenses such as stock or even wages. So what options do you have for meeting expenses if you find you are short of cash?
The three main options are an overdraft, line of credit and business credit card.
Options to consider
When choosing a short term cash flow product there are a number of considerations you should take into account. For example, as a business owner, you may prefer to transact using cheques or you may buy online extensively. Both of these styles require different types of facilities. The type of facility you choose should suit your spending patterns, the value of your expenses and your payment preferences.
"If businesses need to cover expenses in the $50,000-plus range, then an overdraft or an alternative line of credit may make the most sense" says NAB's Head of Business Lending Rob Elliot. An overdraft is a revolving credit facility which allows businesses to draw funds from a transaction account up to an agreed limit. It gives you flexible access to funds at a variable interest rate, with no fixed repayment schedules. Funds can also be easily moved across accounts to meet short falls.
A line of credit facility like NAB Business Plus allows small businesses to use one account to manage purchases and expenses. Lines of credit tend to be leveraged off an asset such as a home to provide access to funds at competitive interest rates – similar to home loan interest rates. They may be used by businesses that want to manage expenses at interest rates that are comparatively lower than credit card financing.
NAB Business Plus is an all-in-one facility which offers businesses simple business banking. It may be used as a transaction account, overdraft and line of credit facility for longer term finance in one account, so it's easy to see and understand your businesses position. A NAB Business Plus facility is usually secured against commercial or residential property and is ideally suited to businesses that need access to a line of credit greater than $100,000 and usually offers a better interest rate than a standard overdraft with no agreed repayment schedule.
Separating personal and business expenses
The third option to consider for managing your short-term business expenses is a business credit card. Many businesses typically choose an overdraft to meet their short-term needs without considering business credit cards which can offer similar features to an overdraft and are specifically designed for business.
If your business needs to cover monthly expenses that are generally less than $20,000, then a business credit card may be the most convenient and cost effective method of short-term finance. An advantage of using a business credit card is that it separates your personal expenditure from your business related expenditure, which makes it easier for you to manage your business' expenses and cash flow needs.
NAB offers a suite of business credit cards that provide a range of customer benefits depending on size, number of employees and most importantly the needs of your business. Dee Crombie, NAB's General Manager, Consumer and Commercial Cards says, "There is our low cost Business Access Credit Card that offers a low annual card fee of $40 per card per annum. Alternatively, our Business Card is a charge card that offers up to 35 interest free days on most purchases and an annual card fee of just $75 per card per annum. We've also recently launched our Velocity NAB Business American Express Card. It's the only business credit card in Australia that earns Velocity Rewards points on everyday business purchases. The Velocity Business Card also provides 55 interest-free days on purchases and a $149 annual card fee per annum. The interest-free days available on this card provide small business owners with extended access to funds at times when cash flow is a challenge to them."
Your choice of short-term funding should meet your business needs. If your needs demand more than one solution why not combine a card that rewards you and has a line of credit facility like an overdraft to give you real flexibility.
For more information, including terms, conditions and exclusions related to the product solutions detailed in this article, please speak with your Business Banking Manager or visit www.nab.com.au
Please note: The Velocity Program is operated by Velocity Rewards Pty Ltd ACN 6 08 448 as a trustee of The Loyalty Trust. Membership and Points redemption are subject to Velocity Terms and Conditions.