Banking and payments
Credit and financing
What kind of financing fits what you need to pay for, and what should you understand before signing?
Six short steps. No email or account.
- Who needs it
- Businesses buying equipment or vehicles, and those whose customers pay slowly.
- When it matters
- Establish credit before you need it. Applying under pressure narrows your options and raises the rate.
- Compare first
- Total cost, not the rate
- Matters most when
- growing, mature
Is this the right tool for you?
Buying a vehicle, a piece of equipment or covering a gap between doing the work and getting paid often needs borrowed money. The wrong product for the purpose, or terms you did not fully understand, can cost far more than expected and strain cash for years. Matching the financing to the need, and knowing what you are signing, is most of the decision.
Signs you need it now
- You are covering business costs on personal credit cards.
- You turn down larger jobs because you cannot fund materials or labor up front.
- You need a vehicle or equipment and are weighing cash against financing.
- Seasonal gaps leave you short between busy periods.
When another area fits better
- You are not sure how big or how long the gap is yet. Read the cash flow and budgeting guide
Recognise two or more of these? Sort out credit and financing next.
Tell us how your business runs and get a plan that puts credit and financing in order with everything else: what to set up first, your must-haves and what to compare.
What matters at your size
Working alone
Lenders often look at personal credit and may ask for a personal guarantee early on. A business credit card or equipment financing is often the first step; understand what you are personally liable for.
A small team
A line of credit for working capital and term loans or equipment financing for assets. Your banking history and financial statements start to carry weight.
Several teams or locations
Larger facilities, multiple lenders and loan covenants that set conditions on how you run the business. Have an adviser review terms.
How the way you work changes the choice
- Trades buying vehicles and equipment
- Equipment and vehicle financing is secured by the asset itself. Compare the total cost with the useful life of what you are buying.
- Contractors waiting on progress payments
- A line of credit or invoice-based financing can bridge the gap between paying for materials and labor and getting paid. Understand the true cost before relying on it.
- Shops buying stock
- Inventory financing and supplier terms can fund stock. Check how repayment lines up with when the stock actually sells.
What to compare
Total cost, not the rate
Factor rates and fees can make a low headline rate expensive. Ask for the APR.
Personal guarantee
Much small business credit requires one. Know what you are signing.
Time in business
Many lenders require a minimum time in business, and the requirement varies widely.
Repayment cadence
Daily or weekly repayment products can strain cash flow badly.
Cost and setup effort
- Compare the total cost of borrowing over the full term, including fees, not just the stated rate or the payment. Some products quote costs in ways that are hard to compare, so ask for the total in dollars.
- Applications usually ask for financial statements, tax returns and bank statements. Up-to-date books make you faster to approve and more credible.
- Read the terms on personal guarantees, collateral, prepayment and what counts as default. Ask an accountant or attorney to review anything you do not fully understand.
Trade-offs to weigh
- Bank or online lender
- Banks tend to be slower with stricter requirements but often cost less. Online lenders can be fast and flexible but may cost significantly more.
- Line of credit or term loan
- A line of credit suits short, recurring gaps. A term loan suits a one-time purchase with a clear payback period.
- Speed or cost
- The fastest money is rarely the cheapest. Arranging credit before you need it gives you time to compare.
When to sort it out
Establish credit before you need it. Applying under pressure narrows your options and raises the rate.
Your next step
Answer six short questions about how your business runs. You get an operating plan: where credit and financing fits among your priorities, the must-haves to hold every option to, and what to compare when you choose.
Where this comes first
Trades and businesses that usually sort this out early.
Often decided alongside
Other parts of banking and payments.