Three common options for business finance include credit cards, overdrafts and loans. The most appropriate choice for you may depend on the type of business you operate and what you're looking to fund. Here are a few things to consider to help you decide.

1. Be clear on the purpose

Some common reasons you may be looking to borrow are to:

2. Understand how each product works

In addition to interest, each product may have fees and charges and terms and conditions you'll also need to consider. These are outlined in more detail below.

Business credit card

  • This could be suitable if you’re looking to pay expenses and manage cash flow
  • If approved, you’ll be given a credit limit – typically up to $50,000
  • Annual fees and interest rates vary per card. At CommBank, we calculate interest from the day each purchase is made, up until it is repaid in full (unless you’re eligible for an interest-free period). 
  • Depending on which credit card you choose, you may have access to features like rewards programs and interest-free days

Business overdraft

  • This could be suitable if you’re looking to manage your cash flow and cover unexpected expenses
  • A business overdraft is linked to your business transaction account and allows you to access extra funds (up to your approved limit) when your account balance reaches zero
  • Interest is charged only when your account drops below zero

Business loan

  • This could be suitable if you’re looking to buy a commercial property or business
  • Your loan is delivered in a lump sum and you typically pay it off over a number of years – you can also tailor your repayment frequency to suit your cash flow, for example monthly or quarterly
  • You also have an option to secure the loan with residential property, commercial property, cash or a mixture of these, which can lower the interest rate
  • Interest is charged on the outstanding balance

3. Interest rates

For each option, the interest rate will determine how much you have to repay each month. Business overdrafts charge interest when your account balance drops below zero. Business loan charges interest on the outstanding balance. Credit cards have two common types of interest rates – purchase interest and cash advance interest rate. Make sure you understand when you could be charged both. This quick guide explains how interest is calculated.

4. How do you want to make repayments?

Each product option has different conditions around repayment, with some more flexible than others. For a variable business loan, for example, you’ll pay back an amount each month over a set period of time of up to 30 years. The amount you repay could change if the interest rate moves.

With a business overdraft or credit card, you can pay off as much as you want, as long as you’re at least meeting the minimum monthly repayment (this may include the interest, fees and charges incurred in the month).

Before you borrow, make sure you have an idea of how much you can repay a month and whether this will vary. Creating a cash flow forecast can help you work this out by predicting money flowing in and out of your business for the next 12 months. 

5. Fees and charges

As well as interest, there can be other costs involved in borrowing. You’ll see the full list in the terms and conditions or schedule of standard fees and charges of whichever product you choose.

Loans typically have establishment, monthly service and exit fees (if you leave the loan before the end of the term). If you secure the loan, you may pay some extra fees such as valuation fees. If your contract is fixed and you choose to pay it out before the end of the fixed period, you may be subject to an Early Repayment Adjustment and administration fee.

Credit cards typically have annual, cash advance and late payment fees.

Overdrafts typically involve an establishment fee, and a line fee charged on the full limit even if it's not used.

6. Other benefits

To fully compare and understand your options, you should also consider any other benefits offered, such as interest-free days.

CommBank Awards credit cards can earn you points for your business’ spending that you can redeem on a wide range of gift cards, merchandise, cash back, flights, electronics and more.

Chat to your local CommBank Business Banking Specialist

Find a banker

Things you should know

This guidance is intended to provide general information of an educational nature only. As this guidance has been prepared without considering your objectives, financial situation or needs, you should, before acting on the information, consider its appropriateness to your circumstances. Applications for credit cards, overdrafts or business loans are subject to the Bank’s normal credit approval and suitability requirements. Fees, charges eligibility and conditions apply. Limits are determined by an assessment of your business needs with no preferred minimum or maximum amount.

View our Financial Services Guide at https://www.commbank.com.au/content/dam/commbank/business/pds/ADB2684.pdf and business banking rates and fees online at https://www.commbank.com.au/business/rates-fees.html You should consider seeking independent, professional tax advice before making any decision based on this guidance. Commonwealth Bank of Australia ABN 48 123 123 124 AFSL and Australian credit licence 234945.