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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.
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.
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.
Pretty much anything you like, as long as it is for business purposes. This can include:
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.
There are a range of factors to take into account when comparing different lenders and products. Some of these include:
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.
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:
There are a range of other products which can assist with your business’ cash flow. These include:
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