Fully Drawn Advances (FDA) or Business Term Loan
FDAs or Term Loans are where the full amount borrowed is advanced to the borrower
on day one. These types of loans are generally over longer terms (up to 15 years)
and may have fixed or variable rates of interest. Repayments may be "Interest Only",
or "Principal and Interest". Overdrafts are probably still the most common type
of finance used by businesses. An overdraft is a line of credit attached to a cheque
account which allows business to operate on a day-to-day basis. The use of an overdraft
is referred to as "working capital". Overdrafts are charged at a variable rate of
interest, with interest being calculated daily on the balance outstanding. The balance
of an account with an overdraft facility should ideally fluctuate between debit
and credit as cash outflows and inflows occur.
Essentially this facility offers:
- reduced timing differences between payment of creditors and receipt of money from
your debtors
- the ability to pay interest only on the funds you use
- a variable interest rate
- fluctuating balance with no set repayments
- access to your funds in a variety of ways including cheque, online or telephone
banking
Sometimes collateral is needed for a business overdraft, however some lenders do
not require it. While business overdrafts are great for freeing up your liquid capital,
they're not necessarily recommended for long-term financing needs as the interest
rates can be higher.
Commercial Line of Credit
Lines of credit facilities let your business borrow money at competitive rates by
using a variety of security options. An effective example is the 'Business Mortgage
Loan' following.
Business Mortgage Loan
A loan which is especially suitable for business people who have a residential property
to use as security is a Business Mortgage Loan. By borrowing against your residential
asset, you can keep your interest rate down and effectively operate in a similar
fashion to a line of credit against your residential mortgage and if you wish, combine
your working accounts (day to day transactions) and loan accounts into one.
As you are utilising a line of credit, even when you've paid off your loan, it will
keep on working as a flexible credit limit that you can use to take advantage of
any other opportunities that might arise.
|