Cash flow facilities which are also known as ‘business overdrafts’, are able to assist your business in many ways. Typically, they are taken out to provide access to cash for unexpected expenses or as the saying goes “for a rainy day”. Well, with the on-going uncertainty of lock downs and covid restrictions on businesses, cash is king, and we’re seeing many rainy days!
Below are a few suggestions for times when you can put that overdraft to good use, to provide cash flow to help your business keep afloat...
Supporting monthly loan repayments
When business income is deteriorating, many clients look to the repayments on their loans and think "how am I going to cover these costs?" The media hype around pausing loan facilities may be the first idea that comes to mind. However, when you work out the numbers, the interest you accrue over the 3 or 6 months of payment deferral will cost you much more down the line. For example, if your loan balance is $100,000.00, pausing your repayments completely incurs interest on your FULL current balance outstanding. For every month you are not making your repayment, your interest is still accruing in the background and carries through month to month until you re-commence your repayments. This method can be extremely costly when you do the number crunching.
If you currently have a business overdraft with cash flow available or perhaps even sitting dormant, have you considered utilising it to cover your monthly commitments? The flexibility of your business overdraft in most cases, allows you to repay back the amount you owe at any time with interest only being accrued on the amount that you use. Assume your monthly commitment for your loans are $10,000.00 per month. By utilising your overdraft, you are only charged interest on the amount that you use. In this case $10,000.00, as opposed to accruing interest on your larger loan month on month (by pausing your loan repayments) ie. $100,000.00.
Once your business income starts to normalise, you are able to repay the principal you owe from your overdraft at any time. Interest is capped once you return the funds and you are not locked into a deferment of 3 or 6 months. The overdraft allows you to draw the funds back as and when you require it.
Fund your continuing education
Some clients we see are utilising their credit cards to pay for their ongoing education. This works well if your card is able to give you an interest free period on your purchase as well as the ability to earn some loyalty rewards. The catch with the interest period is that if you do not pay your card before your interest free period ends, you will most likely incur interest rates as high as 20%. To avoid this, if you see yourself reaching the end of your interest free period and you are unable to clear your card – why not utilise an overdraft to assist with this debt. The interest cost on your overdraft in most cases would be less – sometimes event half! - than the interest rate you would have incurred on your standard credit card rate.
Solving your cash flow needs
In a nutshell, instead of borrowing money to purchase an asset, you borrow money to have readily available cash - and you choose how to utilise these funds.
With Credabl, there are secured or unsecured loans, facilities with ongoing fees or no fees, interest only or principal and interest rates, security or no security, and so on. Whatever your circumstances, we take the time to understand your specific needs both present and future! This is what we do every day. And we do it well.
For more information please do not hesitate to reach out to a Credabl finance specialist to see how we can assist you.
