Business Overdraft

What is a Business Overdraft account?

A Business Overdraft is a feature of transactional bank accounts which allow you to keep drawing funds from even when the account has zero balance. Overdraft accounts often come with specific limits in terms of how overdrawn the account can become.

Similar to a line of credit, the lender will charge you interest on the overdrawn amount. However, unlike a credit card, you will not be charged interest on the balance of the account when it is not overdrawn. This kind of product can be beneficial in assisting with your business’ working capital, and manage any unexpected slumps in cash flow.

What kind of limits can I get on an Overdraft account?

Overdraft Account limits can depend on a range of factors. They can start at anywhere from $5,000-$10,000, and if secured with collateral (such as a person or business asset), then you may be able to access great overdraft limits, subject to approval from your lender.

What kind of interest rates can I expect with an Overdraft account?

If your Overdraft Account is secured with property or business assets, then this places less risk on the lender and could attract a lower interest rate. However, if you choose an unsecured Overdraft Account, then this can come with a higher interest rate. It’s important to note that interest rates can vary between lenders, make it important to shop around and compare products before making a decision.

When it comes to fixed or variable rates, it’s important to note that some lenders only offer one or the other. More commonly, interest rates for Overdraft Accounts tend to be variable.

What kind of things could I use one for?

Pretty much anything you like, as long as it is for business purposes. This can include:

• Cover business expenses
• Pay wages
• Pay supplier invoices
• Purchase stock or inventory
• Make additional purchases to expand your businesses
• Potentially negotiate better terms with suppliers by using Overdraft to make larger upfront payments
• All other tax, loan repayments, and employee entitlements are up to date

What are the benefits of a Business Overdraft account?

It’s not uncommon for businesses to experience slumps in cash flow, or to incur unexpected costs which are difficult to manage with available cash.

• Improved cashflow: Helps you manage unexpected expenses, and provide a cashflow buffer between providing services and awaiting payments from customers or clients.
• Interest: Interest is only charged on the overdraft amount, and only when it’s overdrawn.
• Flexibility: You have the ability to access the funds when you need them without any additional approvals required.
• Payments: Unlike with a loan, you’re not required to make regular, fixed repayments.

What are the disadvantages?

• Higher interest rate: Overdraft Accounts can come with higher interest rates than other business loan products. For this reason it’s important to talk to the team at Valiant to get a better idea of what product is suitable for your business.
• May require security: Depending on the size of the overdraw facility and the nature of your business, the lender may request that a physical asset is used as security. This can pose additional risk to your business, because if you’re unable to make repayments on the Overdrawn Account, the lender could repossess the secured asset.
• Fees & Penalties: You could be charged account fees, even if you don’t use the additional overdraw the account (including setup fees, and monthly or annual fees).

What kind of things should you consider when comparing lenders?

There are a range of factors to take into account when comparing different lenders and products. Some of these include:

• Overdraft limits: This is the total amount in which you can overdraw your account.
• Interest rates: Different lenders can offer different interest rates, as well as fixed or variable interest rate options.
• Fees & charges: Some lenders can charge both setup fees as well as other ongoing maintenance and administration fees. These can vary between lenders, so it’s a good idea to factor them into your product comparison.

Does my Overdraft account need to be secured?

Lenders will have different criteria in terms of having your Overdraft secured or unsecured, and this can depend largely on the size of the Overdraft, and the nature of your business. If the lender requests the account to be secured, then residential or commercial property, or some other physical asset such as a car may be required as collateral. However, if you choose an unsecured account, then the lender may require a personal guarantee.

What do I need to be eligible for an Overdraft account?

Lenders may consider a range of factors when assessing if you’re eligible for an Overdraft Account. If your account is not secured with an asset, then it’s likely they will perform a thorough assessment of your trading history and credit worthiness.

Other factors which may affect your eligibility include:

• Whether you’ve declared bankruptcy
• You haven’t had any credit or overdraft accounts in arrears
• Business turnover and cash reserves
• How long you’ve traded for
• Business must be a tax resident of Australia

What other Business Loan products can assist with my working capital?

There are a range of other products which can assist with your business’ cash flow. These include:

• Unsecured business loans
• Business credit cards
• Line of credit
• Merchant cash advance

Compare Business Overdraft products from a range of providers with iSelect and Valiant

Looking for a suitable Business Overdraft product to suit your business’ cashflow needs? At iSelect we’ve partnered with Valiant to make it easy to compare products on offer from their range of lenders. Valiant compare a range of products from over 80 lenders across Australia, and can manage the process of finding and applying for your finance solution, as well as settling funds. Get started comparing online today!

Last updated: 28/01/2021