An overdraft is the first form of funding most people think of when funding their business. But it is a temporary facility added to business bank accounts where you are able to be overdrawn in your bank account by an agreed amount. You are charged interest based on the amount overdrawn, based upon the length of time overdrawn, and are usually charged a regular fee for the use of the facility, with often a renewal fee as well.

An overdraft can be useful  and they are a good backup to ensure you can pay your bills even when you have not yet received your invoice payments from customers though Invoice Finance is often a better option as it generally releases more cash.

However what most businesses fail to realise is that an overdraft is not supposed to be a permanent source of finance plus a bank can recall the entire overdraft at any time unless specified in the terms and conditions. This can happen if you fail to make other payments, if you have broken terms and conditions, or the bank simply changes their policies and withdraws a facility which is more common in the current financial climate.

On the positive side an overdraft is there when you need it, and costs nothing barring an annual fee. You only need to borrow what you need at the time. However an overdraft will carry interest and fees often at much higher rates than loans, so this can make them very expensive for any type of long term borrowing. You also face large charges if you go over the agreed overdraft limit with little flexibility offered.

 Why not contact us today to see what we can do to help fund your business?