Let’s Understand Business Overdrafts
“A business overdraft should be opted for and operated judiciously and should only be used for short-term economic gains. ”
Business Overdrafts are basically the instruments that are used by businesses for the maintenance of suitable cash flow. In this way companies are able to generate finance primarily by way of borrowing as many banks these days willingly provide such services along with business bank accounts.
The only thing to be done is to arrive at a suitable sum that can be taken care of by the bank for the everyday needs of a particular business. This remedy is much preferred by companies as almost any kind of permissible demand is met readily by the banks and this method is far easier than opting for loans.
Moreover, the interest rate comes out to be lesser as only the particular daily amount that is used for clearing overdraft is taken into account for calculation of interest. The formalities are minimum and if you are at good terms with the authorities of a bank, you can even set up such an overdraft via telephone only.
You also get the added benefit of repaying the amount as soon as your company gets sufficient funds. It means that there is no question of any kind of fine for premature repayment.
A word of caution here. You should always borrow in excess of your needs. It is necessary because lately banks have started imposing sizeable penalties in case you are to increase the decided overdraft amount after some time.
Also, don’t ever keep your assets as guarantee for obtaining such an overdraft. It would mean the same thing as opting for a secure loan and would eat into the benefits of business overdrafts. Some banks have started such kinds of overdrafting procedures, as they are suspicious of the stability of the companies in these volatile economic times.
Another feature that may worry you is the erratic rate of interest that is used for business overdrafts. You can really find yourself in a lot of difficulty when you try to compute the monthly or fortnightly interest with extremely varying interest rates. The banks usually have the final say in such matters.
If you are desirous of establishing a business overdraft with another bank, you have to move your present account to that particular bank or open a new account in the desired bank with a hefty sum. This process can be awfully cumbersome.
The crux of the matter is that a business overdraft should be opted for and operated judiciously and should only be used for short-range economic gains.
Author - DeeKay
Tags - Finance, Economy
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