Understanding the financial aspects of business overdraft

On 24 Oct., 2021

In the dynamic world of enterprise growth, the financial crunch is no new catastrophe. Businesses often reach an unfortunate financial predicament where they can either choose to take risks or select saving their finances.

Understanding the financial aspects of business overdraft

However, there is always a midway at times of financial dilemma. Whether you are looking to expand your business and you are short of cash or want to get some new equipment for your production team and you are low on money, a business overdraft can always serve the purpose.

What is a business overdraft?

A business overdraft is defined as a credit agreement between the lender and the borrower that enables a business to use the funds within the allocated limit for business purposes. Conventional business overdrafts are linked to a business transaction account and they work in the same way as that of a business credit card.

How do business overdrafts work?

Business overdrafts are typically attached to the primary transaction account of enterprises and they allow the account to be drawn to the extent of limit approved. A business overdraft can be obtained unsecured without any security up to $250k.

When should one use a business overdraft?

Business overdrafts are expeditiously becoming popular because they are highly flexible funding solutions that are flexible relatively cheaper if used efficiently. Business overdrafts can be immensely helpful for:

  • An enterprise working with lumpy cash flows. For example, if you have to pay your staff weekly but your clients will pay only upon job completion, you can get a business overdraft.
  • Funding the general working capital.
  • Aiding cashflow during times when the business is slow or meeting one-off unexpected operating expenses that incur spontaneously
  • Circumstances where additional cash is needed urgently.

However, if you want funds for long term capital expenditure like equipment purchase or you want money for everyday use where there is little or no working capital in the business, a business overdraft may not be the right pick.

What is the eligibility criteria for a business overdraft?

To qualify for a business overdraft, a business must:

  • Have a valid ABN (Australian Business Number) and be registered for GST.
  • Showcase Australian citizenship or permanent residency.
  • Be operational for at least 12 months.

The bottom line

Running a full-fledged business is all about maintaining a steady cash flow. If everything goes well and your business flourishes with consistent cash flow, then it’s well and good. However, if you find yourself between the breaking bridge of the financial crisis, business loan brokers can prove to be a brilliant option. They can save enterprises all the legwork and aid them in finding reliable lenders that they can never find on their own.

Are you drowning yourself amidst the list of online lenders? Then stop now and consolidate your search efforts at a one-stop destination that facilitates easy search within a snap.