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Business overdraft vs business loan - What’s the difference?

Being a small business owner is hard. Or, to put it in current-day terms; being a small business owner presents many learning opportunities.

Learning every aspect of running a small business often takes more time and energy than the plumbing, floristry or whatever your primary service is.

You know your elbow from your o-ring , but when it comes to knowing the ins and outs of business finance you’re starting from scratch.

If you want to manage your cashflow and keep your business flourishing, it’s important to know the basics.

Understanding small business finance

In small business, the difference between flourishing and floundering can come down to whether you have easy access to funds.

Most businesses look to two types of small business finance: business overdrafts and business loans.

Each of these can be secured or unsecured. Secured borrowing means you’ll need to use an asset such as property as collateral in case you can’t repay your debt. To state the obvious, unsecured means you don’t need to put an asset up as collateral.

What is a business overdraft?

A business overdraft is like a financial safety net for your business's transaction account. It’s a business line of credit that lets you withdraw more money than you have in your account, up to a set limit. It's handy for unexpected expenses or covering short-term cashflow gaps.

Benefits of a business overdraft

With an overdraft linked to your business transaction account, you pay interest only on the amount you use, avoiding fixed repayments. This flexibility helps manage the predictably unpredictable financial needs of running a small business.

Once approved, you can access the funds straight away, making it great for addressing immediate needs like buying stock or paying staff.

If you choose an unsecured overdraft, you won’t need to use your assets as collateral in case you can’t repay your overdraft.

What is a business loan?

A business loan is a lump sum of money provided by a lender, usually with set fortnightly or monthly repayments. Businesses use these loans for various purposes, from expanding their space to buying new equipment.

Benefits of a business loan

Small business loans offer regular, predictable repayments, making planning and budgeting relatively easy.

They work well for larger investments aimed at growing the business.

And just like an unsecured overdraft, if you choose an unsecured loan, you won’t need to use your assets as collateral.

How to choose between a business overdraft and business loan

Now that you have a clearer understanding of your two main options, here's how to choose the right one for your small business.

Think about what you’re trying to achieve. Are you dealing with a lot of unpredictability? Do you have a cashflow problem? Are you just trying to cover expenses? If so, a Business+ Unsecured Overdraft could be your best option. It has an approved limit between $10,000 and $50,000 and you’ll only pay interest on what you use, not your balance.

If you’re planning to grow your business and need equipment, a vehicle or an extension to your site, consider a Business+ Unsecured Loan. You can borrow between $20,000 and $50,000. And, because it has a fixed interest rate, your repayments are simple and predictable.

You can apply for either product in minutes through the Great Southern Bank Business app.

As a small business owner you’ve got plenty on your plate. Luckily, learning the basics of small business finance doesn't have to be a job in itself.

Armed with new knowledge about business overdrafts and business loans, you can make informed decisions that benefit your business.

For everything you need to know about running a successful business, visit our online Business Hub.

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Your pocket-sized business partner

For too long, smaller small business owners have had their unique business banking needs overlooked.

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Whether you’re striving for global domination, or you’re blissfully content as a sole trader, the Business app makes small business banking easy.

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Important Information

The information provided here is general in nature. We haven’t considered your financial circumstances, needs or objectives. Consider the appropriateness of the information, before acting on it. You should ask your Tax Advisor or Accountant before you decide about products mentioned in this article. All care has been taken to prepare this content, but no warranty is given for the information provided. Neither Great Southern Bank or its related entities, employees or agents are liable for the decisions or actions you take because of this information.

Business+ Loan and Business+ Overdraft are only available to approved applicants for business purposes. Lending criteria, limits, conditions, and fees apply. Applications are subject to credit approval.