Starting or expanding a business can involve some tricky financial management. You often need to invest in sourcing materials, obtaining warehouse stock or fitting out a shop before you’ve started making sales. That’s where a business overdraft can come in. A business overdraft allows you to spend more cash than is sitting in your business account, so that you can focus on growing your business.
What is an overdraft?
Upon establishing your overdraft, you are able to withdraw or utilise more money than has been deposited into your account. The key difference between a loan and an overdraft is that the overdraft is connected to your existing bank account, allowing you to spend more than you’ve put into it.
There are two types of business overdrafts: secured and unsecured. Secured overdrafts, like other types of secured loans, are where you place an asset, such as a property or vehicles in collateral in cases of default on the payments for the loan. Unsecured business overdrafts can be short term or ongoing, depending on your business’s circumstances and preferences regarding repayments.
Overdrafts can be helpful for small businesses under a range of circumstances, such as launching a new product, opening a new location, or any other activity where you may need more cash-flow up front to successfully launch or complete your undertaking. This additional line of credit can also be useful in “quiet” periods, allowing you to prepare by ordering additional stock prior to a peak period.