Saving and borrowing

Business savings account

There are a range of business savings accounts to choose from if your business is making a profit. The interest rate on the account will help you decide which account will earn you the most money. The interest on a savings account is the amount the bank or building society will pay you if you decide to save your money with them. It is worked out as a percentage of the money that is in the account.

Borrowing

Should your business need to borrow money, there are a range of borrowing options available. Here are some of them:

  • Business loan

A business loan can be borrowed from a bank or finance company and will need to be repaid via agreed monthly instalments. You will pay back the original amount you borrow plus interest. Interest is the money the bank charges for lending you the money and this will be a percentage of the amount you borrow. Often, if you are starting up a business which has not started making profit yet, you will need to show the bank a detailed business plan. This will include all your figures and projections for your new business. The bank will then decide whether or not to lend you money based on whether they think your business will be successful or not.

  • Family loan

Often banks are reluctant to lend money to new businesses before they start making money. In this case, many people will ask to borrow money from family members to start their businesses. This may be a more flexible option as family members may agree to wait for repayments until the company starts to make profit.

  • Business overdrafts and credit cards

Similar to a loan, you will need to repay the original amount borrowed plus interest on the accounts. Business overdrafts are an extension of your normal account, whereas credit cards are separate accounts. They are often seen as short-term fixes because the rates of interest on some of these accounts can be very high, especially after any introductory offers expire.

  • Borrowing against your assets

If you have any value in the assets that the company owns, you can use this as a guarantee against any money that you borrow. Be very careful with this method – if you are unable to make the repayments the bank has the right to your assets.

  • Government funds

There are many different funds available for businesses from the government. You will have to apply for the funding and meet certain criteria to be able to access this money. However, if you are successful, you will not need to repay this money.

  • Cash-flow finance

Cash-flow finance is a short-term loan that you can borrow to pay bills when you know there is an income shortly coming in. The interest is usually high on these accounts and is normally only used over short period of times.