As a small business-owner, you’ll require banking products such as credit cards, business loans, online savings and transaction accounts to manage cash flow – unless you have vast personal wealth. Mozo director Kirsty Lamont says the banks are competing in the sector with more available credit and competitive rates.
“There’s often a significant difference to the costs of business banking accounts, whether it’s a credit card, loan or everyday transaction account,” says finder.com.au founder Fred Schebesta. For example, Commonwealth Bank’s Netbank Saver has a promotional offer of 2.85% on balances up to $5 million, while CBA Business Online Saver offers 1.4% for $10,000-plus.
A transaction account and credit card “are two simple tools to manage cash flow and expenses,” says Lamont. “Credit cards are often used to manage expenses by taking advantage of interest-free periods. Plus, some rewards can be really valuable.” But Schebesta warns: “Look out for the lowest purchase interest rate and be aware of annual fees.”
Some savings accounts are specifically for businesses. “Look for the highest interest rate but be aware of short-term introductory rates which may change after three or six months,” says Schebesta. ING Direct’s Business Optimiser is the best of such accounts currently, says finder.com.au. It pays 3% before reverting to 2.25% after six months. “It’s always a good idea to squirrel away savings for tax time, emergencies or large lump-sum payments throughout the year,” says Lamont.
Schebesta says: “Fixed rates are handy for businesses because it can help you manage your cash flow by knowing your repayments won’t change over the fixed term. But if you can find a cheaper variable [loan] and it doesn’t rise during the loan term, you could save more money.”
SMEs find getting credit difficult without putting up a home or another asset as collateral; start-ups find it impossible. So non-traditional lending products come to the fore. “We are starting to see the emergence of alternative players like online and peer-to-peer lenders that could really shake up the sector,” says Lamont.
They include Prospa, SpotCap, Moula and Kikka, all of which provide fast online SME loans, says Lamont. Moula’s Dean Loudena says it uses a business’s transaction and sales information to make a lending decision within the hour. “We look at whether they are a solid business, and if they are delivering good numbers,” says Louden. This rules out most start-ups.
PayPal Working Capital is an option for fast short-term funding of up to $85,000. “Businesses need a minimum 12-month trading history with PayPal in order to be considered for a cash loan, so it’s not an option for start-up funding,” says Lamont.
Anthony O’Brien is a small business and personal finance writer with 20-plus years’ experience in the communication industry.