You require some finance from your Bank for your business but which is the best facility to suit your needs? Should you get a line of credit, an overdraft, a Bank Guarantee or a business loan?

There are some key differences to each of these facilities. Each product has been established by the Banks for specific purposes and as a result all have different functions and fee structures.

Many people believe that a line of credit and overdraft are one and the same, but this is not the case. If you have cash flow difficulties waiting for payments to come in from the invoices you sent out at the end of the month and have creditors banging on the door, then you probably require an overdraft to help you manage your cash flow cycle. An overdraft will help with making operational payments whilst waiting for your customers to pay you.

Need access to your money quickly because you found a bargain on a piece of equipment but need the cash immediately? Then what you need is a line of credit, they are used for larger equipment and capital purchases which you may hold on your balance sheet for a longer period of time. Don't apply for or use your overdraft for these items as it will play havoc with your cash flow. The line of credit is established with a limit so that you have the ability to negotiate the purchase price knowing the funds are immediately available and you don't have to approach your bank for finance. Transaction fees are generally higher on a line of credit than an overdraft as they are designed to be used irregularly with occasional capital purchases.

Business loans can also be used for equipment and capital purchases and they are traditionally used when purchasing property, buying a business or consolidating debt. Unlike the other two facilities, business loans have a set term and generally you pay the loan down over that agreed term.