What are the different types of Small Business Loans?

YOZO knows

There are several funding options out there for small businesses - but what are they and how do they work??

Below is a summary of what's available, without the jargon and our tips on each.

Unsecured business loan

A funding solution with set loan amount and structured repayments over terms ranging from 3 – 24 months.

Funds can be used for multiple purposes and you have the benefit of knowing your repayments from the outset.

The approval process is typically very quick and you can access funds within 24 hours of being approved.

Whilst the lender will assess how much you can borrow, no one knows your cashflow better than you so make sure you are comfortable with the proposed repayments and use the funds exactly as you intended.

Business line of credit

A business line of credit is a revolving limit, allowing you to access funds as many times as required for any business purpose and unlike a normal loan there are no set repayments, you simply pay interest on the amount of funds you draw under the limit and manage your debt reduction based on your cash flow.

These limits are typically reviewed by the lender annually.

Always have a repayment plan if you are using these lines of credit for bigger draw downs to ensure you are making reductions.

Overdraft

Similar to a Business line of credit however the limit is linked to your day to day transaction account which helps you manage day to day working capital needs when there is a shortage in cashflow.

The idea is that the balance fluctuates between credit and debit.

Overdrafts are not only a useful for managing your cashflow but also a great tool to monitor your business – If you are spending more time in debit than credit there may be something you need to address in your business.

Invoice financing

Invoice finance or Accounts Receivable finance is a great funding solution when your cashflow is held up due to unpaid invoices.

The facility or draw down limit is set and secured by your outstanding invoices with lenders extending up to 80% of the value of your outstanding invoices.

You get 80% of the funds upfront as a loan and the remaining 20% less the lenders fee when the invoice is settled by your customers.

Make sure you have a good understanding of your customers and their ability to pay their invoices in a timely manner.

If they are late in paying your wear the cost.

Equipment Finance

Allows you to buy most types of business gear (vehices, machinery, fit out) and is secured by the equipment you are purchasing allowing you to access cheaper rates.

Repayment terms of up to 60 months are available subject to the types of equipment.

There are different tax implications for each type of equipment loan (e.g. Hire-purchase, lease, chattel mortgage) so chat to your accountant about the most appropriate one for your business.

Yozo is here to help - calculate your limit now and let’s find the right solution for you.