A bank overdraft is a kind of a short-term flexible loan extended by a bank to businesses and corporate clients to use funds from their account in excess of their balance. This facility is provided by the bank for a fee and interest is charged on the excess amount that is utilized over and above the balance for the period of the time the funds are being used.

An overdraft facility allows the facility holder to utilize money from the account despite having no balance. There is usually a limit on the amount that can be overdrawn from the account. The overdraft limit is usually set by the bank on the basis the amount of working capital and creditworthiness of the applicant business entity.

Why Overdraft Facility?

Convenient

Overdraft facility offers an ease of using funds whenever you need it. It is usually helpful for businesses where cash flows move in and out multiple times during a month.

Reliable

It is the most reliable source of funds; especially for business growth, because it helps to maintain a good payment history as any payment made via cheque does not bounce due to insufficient funds, which may have been made against some receivable, which may come a couple of days later.

Economical

Since the interest is calculated only on the amount of funds utilized, there are great savings in the interest cost when compared to a normal loan which comes with a fixed interest rate.

Less Documentation

Overdraft facility is usually easy to avail compared to long term loans which may require more paperwork.

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