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There are many reasons why your business might need to borrow money. Perhaps you’re taking on more work and need to cover the cost of supplies. Or maybe you’re investing in new equipment or adding another vehicle. Whatever your reason, here are some ways to borrow smartly and manage your costs.
Review Your Credit History
Contact a credit bureau at least once a year to check that your credit rating is accurate and up-to-date. If you notice discrepancies in your report, clear them up at the source.
A good credit rating protects your reputation and may allow you to borrow at a better rate. Equifax and TransUnion are the major credit bureaus in Canada.
Apply for Credit in Good Times
Borrowing when your business is sound and profitable may help you secure a better borrowing rate. For example, some businesses may borrow to expand even if they already have the cash to cover the cost. This frees up cash for unexpected expenses, while the anticipated revenues generated by the expansion covers the loan costs. Your business banker can help you decide if this strategy is right for you.
Match Borrowing to Your Goal
In general you should match your business financing to your goal. For instance, use long-term financing, such as a term loan, for longer-term purchases such as a piece of equipment. Keep your credit card free for shorter-term needs.
Your business banker would be happy to advise you on the product that best meets the needs of your business. Here’s a quick list of some of your options:
- Term Loans
These loans are used to purchase the fixed assets of your business, such as equipment or a vehicle. Term loans are usually repaid monthly, based on the expected lifespan of the asset being purchased.
- Business Credit Card
This may be a good choice for smaller purchases or paying off suppliers. Take advantage of your card’s grace period — you may have up to 26 days after making your purchase to make your payment.
- Line of Credit
A line of credit (sometimes called an operating loan) can be a very useful tool. One of the advantages is its flexibility: once you are approved for a maximum loan limit, you can draw on the money anytime you need it, without having to apply again. And you pay interest only on the amount you draw on.
Speak to your business banker about the steps you can take today to manage your borrowing costs tomorrow.
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