Cash vs. credit: Which is best for my business?

Glenn Westoby

Tuesday, 13 April 2021

When it comes to funding a new business project, it can be tempting to tap into savings or cash flow. After all, you’ll replace what you withdraw as soon as you’ve made your money back.

But using your own cash isn’t always the best move. While you might save money in the short term by avoiding interest, you'll also be putting your business at risk.

It’s important to consider your financial situation, future plans and the urgency of your project when deciding between finance and using existing funds. Let’s explore the pros and cons of each option...

Key benefits of taking out finance

1. Put your business in a better position long-term

Yes, taking out finance means paying interest, but it also gives your business room to move forward. Stagnation comes with a cost, too, and investing in the growth of your business outweighs the initial cost of your loan.

Taking out finance also gives you the flexibility to choose a loan amount that best suits your needs, rather than having to make do with less, risk damage to your business, or worse, when you face an inevitable contingency.

2. Keep your cash flow steady

Using cash flow to fund new projects can put your business in a vulnerable position. If an unexpected emergency strikes, what will you fall back on?

COVID-19 serves as a reminder that we never truly know what’s around the corner, and while you can’t control external events, you can prepare for the unexpected. Part of this means having the discipline to avoid eroding your cash flow even when things are going well.

In addition, many lenders offer temporary solutions to unforeseen circumstances, such as grace periods and repayment holidays (meaning you can press pause on your repayments for a period of time) to help you get by. This leniency can buy you time and provide the breathing room you need to get your business back on track.

3. Build your credit history

Taking on debt (provided you’re making repayments on time) shows lenders you’re responsible and trustworthy when it comes to credit. This alone can improve your credit score over time and position you as a reliable borrower… And both will count when you want to take out finance again in future.

4. Reduce your tax burden

If you have your eye on a new business asset, whether that’s heavy machinery, office equipment or a new vehicle, financing can reduce your tax burden through incentives like the instant asset write off. This initiative allows you to borrow eligible business assets and immediately depreciate them, reducing your taxable income.

It’s also worth noting that the interest portion of a business loan is tax deductible, and you can claim eligible assets as business expenses.

5. Access cash sooner

In an emergency, fast access to cash is essential. If you don’t have funding on hand (or enough of it), you’ll need to take out unsecured finance to bridge that gap.

Through Valiant, unsecured loans can be approved in as little as 24 hours and do not require security. Seeing as assets take so long to value for secured loans (sometimes several months), unsecured funding is a no brainer if you need fast access to cash.

What to consider before taking out finance

1. Interest rates and fees

Borrowing comes with a cost. After all, banks are businesses too. While it’s important to consider the cost of interest, keep in mind that a low rate doesn’t necessarily equal good value. That’s because fees and charges (often outlined in the fineprint) can drive up the total cost of your loan.

A Valiant lending expert can help you determine whether you’re getting good value for money by breaking down the total cost of your loan over a quick phone call or via email.

2. Some loans require collateral

If you’re looking at taking out secured finance, you’ll need to put an existing asset forward (usually a property). It’s used to secure your loan, and in the case of default (touch wood) your lender can use that property to recoup any losses incurred. Rest assured lenders view this as a last resort solution!

If you don’t have eligible assets on hand or would prefer not to put them on the line upfront, using cash or taking out unsecured finance might be a better option.

3. Finance can be difficult to access

Applying for finance traditionally is considered by many business owners to be tedious and time consuming. If you’ve applied for finance before, you’ll know there are many hoops to jump through before you even know where you stand!

Valiant allows you to cut through the red tape and get approved in as little as 24 hours. We do this by leveraging relationships we’ve built with 80+ lenders, negotiating rates on your behalf and taking on much of the paperwork and heavy lifting involved in applying.

Both cash and credit have their pros and cons, and the right solution for you depends on your financial situation. But generally, taking out finance is a wiser choice in the long-term. If you’re still unsure which option to go for, get in touch with a business lending expert for a free assessment and quotation, tailored to your needs.


Glenn manages a team of working capital and asset finance product specialists here at Valiant, ensuring clients get the very best outcomes for their businesses.

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