Choosing between a credit card, overdraft or loan

Depending on the type of business you operate and what you're after, the best borrowing option for your business needs could be a credit card, overdraft or loan. Here are a few things to consider that can help you decide.

1. Be clear on why you need the funds

Some common reasons you may be looking to borrow are to:

  • Pay for unexpected business expenses
  • Manage cash flow - due to customer non-payment or seasonal fluctuations
  • Purchase a property or business
  • Purchase a car or equipment - Asset Finance may be a more suitable option for this type of expense

2. Understand how each product works

Business credit card

  • This could be suitable if you're looking to pay for unexpected expenses and manage cash flow due to seasonal fluctuations
  • If approved, you'll be given a credit limit, which is the maximum amount you can spend up to
  • Interest free period - this means you won't be charged interest so long as you pay the full closing balance by the due date each month. All ASB Business Credit Cards offer up to 50 days interest free for purchases
  • Rewards - certain business credit cards can earn you rewards for spending. ASB's Visa Business Rewards credit card can earn you True Rewards Dollars for your business' spending that you can redeem on a wide range of gift cards, merchandise, travel, electronics and more

Business overdraft

  • This could be suitable if you're looking to manage your cash flow and cover unexpected expenses
  • A business overdraft is linked to your business transaction account and allows you to access extra funds (up to your approved limit) when your account balance reaches zero
  • Interest is charged only when you use the funds
  • An ASB Business Overdraft may suit small business owners looking for an option where no set term or security is needed (terms may apply)
  • ASB's Business Overdraft can potentially be funded the same day you apply for it, so you can use the funds straight away

Business loan

  • This could be suitable if you're looking to buy a commercial property or business
  • A business loan is delivered in a lump sum and you typically pay it off over a number of years - you can also tailor your repayment frequency to suit your cash flow, for example fortnightly or monthly
  • You also have an option to secure the loan with residential property, commercial property, cash or a mixture of these
  • Interest is charged on the outstanding balance
  • ASB has a range of business lending solutions tailored to the size of your business

3. Understand the interest rates

For each option, the interest rate will determine how much you have to repay each month. Credit cards for example, have two common types of interest rates - purchase interest and cash advance interest rate. Make sure you understand when you could be charged both. Check out our quick guide which explains how interest is calculated for credit cards and loans.

4. How do you want to make repayments?

Each product option has different conditions around repayment, with some more flexible than others. For a variable business loan, for example, you'll pay back an amount each month over a set period of time of up to 30 years. The amount you repay could change if the interest rate moves.

With a business overdraft or credit card, you can pay off as much as you want so long as it's above the minimum monthly repayment (this may include the interest, fees and charges incurred in the month). However, additional fees may apply if not paid in full.

Before you borrow, make sure you have an idea of how much you can repay a month and whether this will vary. Creating a cash flow forecast can help you work this out by predicting money flowing in and out of your business for the next 12 months. 

5. Fees and charges

As well as interest, there can be other costs involved in borrowing. You’ll see the full list in the terms and conditions or schedule of standard fees and charges of whichever product you choose.

Loans typically have establishment fees and if your contract is fixed and you choose to pay it out before the end of the fixed period, you may be subject to an Early Repayment Adjustment and administration fee.

Credit cards typically have annual, cash advance and late payment fees.

Overdrafts typically involve a line/limit fee, monthly account fee and interest.

An ASB Business Manager can explain each option in more detail and help you understand which may best suit your needs.

Next steps

Enquire online

Tell us about your business and how we can help, and one of our team will get back to you.

Enquire now

Talk to an expert

Our business and rural experts can help you choose the right products and services for your business.

Find an expert

Visit a branch

Visit us at one of our many branches.

Find a branch

Keep reading

What's next for your business?