Affordable Business Overdraft in a Rising Cost Climate
2022 is certainly presenting quite a different set of economic and business circumstances to the previous two years. While the pandemic-related issues of 2020 and 2021 presented business owners with plenty to contend with, the government stimulus measures and record low interest rates were of great assistance to many. With both those supports now not available and inflation and operating costs surging, businesses need to look to other means. Business Overdraft is a traditional and very popular form of business finance which can be used to cover short-term or recurring shortfalls in income and cash flow.
Shortfalls and pressure on cash flow is currently being felt and will increase for many operators as prices on goods and services including materials and supplies increase and due to a number of other decisions.
We cover off on current cost drivers, how an overdraft may assist, the options in sourcing a Business Overdraft and what other options may also work for an individual business.
Business owners will be experiencing price hikes both in business and household expenses. The global supply disruptions have flowed-through to issues and price increases across many materials and components. Supply shortages for many materials have also driven up prices and caused massive issues in some industries, especially the construction sector.
Material shortages have caused delays on projects which can mean delays in receiving progress payments and place pressure on business cash flow. Where a fixed price project is impacted with costs hikes, the onus may be on the business to absorb the increases.
An impact on regular outgoings may also come from the increase to the minimum wage which was granted recently by the Fair Work Commission. Wage increases may also be required to attract the necessary workers to fill job vacancies. Higher wages bills may also be incurred in covering for workers off-sick with COVID.
Increases in wages bills are a direct hit to cash flow and profitability. They are reflected not only in the wages but in payroll tax and workers compensation. In addition, from 1 July the superannuation guarantee rose by 0.5% to 10.5%. Adding more to the wages bill for those that offer SG on top of wages.
The expiration of the fuel tax in September is another factor to start planning for. The new Treasurer Jim Chalmers has stated that this will not be extended. So it’s time to prepare for more pump pain.
Interest rates are also on the rise as the RBA
acts to curb inflation. Actions which will take time to take effect. For businesses with variable rate loans,
this may mean an increase in outgoings.
When outgoings can’t be controlled directly as is the majority of the situation at the moment, businesses need to look for support to boost income to cover any shortfall.
is a tried and true go-to finance product for many businesses. Many businesses operate with an ongoing overdraft and likely could not imagine surviving without this facility. For operators that have lagged or delayed payments, an overdraft can be a necessity.
While banks have been the source for most businesses to set-up an overdraft, the expansion of the finance sector banks are no longer the sole source for this facility. With the entry and emergence of many non-bank lenders, especially those that specialise in business finance, operators now have more options.
Non-bank lender overdrafts can be an attractive option to many business operators for varying reasons. Some simply may not wish to approach their bank for this type of facility. Some may not meet the criteria for bank business finance. Some may be proactive in engaging the services of a broker such as ourselves to explore other sources and cheaper rates.
Both bank and non-bank lender overdrafts are set-up in similar structures. A line of credit is approved to the business at a set interest rate. The business can utilise all or part of the overdraft limit when required.
Interest is only charged on the amount of the overdraft utilised. This makes an overdraft preferable to say a business loan where interest is charged on the full loan amount. If a business only requires the need to use a small amount of the overdraft facility in one month, then only that amount is subject to interest charges. As with other forms of business finance, interest on an overdraft is tax deductible.
We can arrange overdrafts through either banks or non-bank lenders and negotiate the best interest rates. This type of facility can be set-up for a short period to cover a short-term issue or as an ongoing line of credit.
Alternative Finance Support
While an overdraft is a flexible finance facility, there are other options which may be considered. For example, a Secured Business Loan
which attracts a lower interest rate than an overdraft. This type of loan is typically for non-asset acquisitions but may be suited to businesses they have a need for medium-term support.
Our specialist business finance consultants will listen to your situation and present the most workable solutions to meet your requirements and proceed to source quotes at the cheapest rates. With inflation looking rising in the medium term and price pressures persisting for some time, this may be the time to set your business up for a stress-free and profitable future with a suitable finance facility.
Contact Business Finance on 1300 000 033 to discuss a Business Overdraft and other finance facilities
DISCLAIMER: THE SPECIFIC PURPOSE IN PROVIDING THIS ARTICLE IS FOR GENERAL INFORMATION ONLY. IT IS NOT INTENDED AS THE SOLE SOURCE OF FINANCIAL INFORMATION ON WHICH TO MAKE BUSINESS FINANCE DECISIONS. BUSINESS OWNERS WHO REQUIRE ADVICE OR GUIDANCE AROUND THEIR SPECIFIC FINANCIAL CIRCUMSTANCES ARE RECOMMENDED TO CONSULT WITH AN ADVISOR OR ACCOUNTANT. NO LIABILITY IS ACCEPTED IN REGARD TO ANY MISREPRESENTATIONS OR ANY ERRORS RE ANY DATA, SPECIFICS, POLICIES AND OTHER INFORMATION AS SOURCED FROM OTHERS.