Quick facts to remember about business overdraft loans
- Business overdrafts provide you with the ability to access real cash, not credit. You are able to utilise funds up to your approved amount, or only part of your approved overdraft.
- When taking out an overdraft, depending on the lender, you may be given a set monthly minimum repayment amount, or a monthly line fee. A monthly line fee is calculated on how much of the overdraft is being utilised, and providing your overdraft total is under a set limit.
For example, if you have established an overdraft for $50,000, your lender may decide that on top of your existing account fee, as long as you have not utilised more than 60% of your overdraft amount, your monthly line fee is reduced by 20% (this is a purely speculative figure to illustrate the concept, please contact your lender to find out your costs). But if you need access to the full amount, the line fee may be increased.
- Overdrafts do not usually come with a fixed closure date like a loan, so they can be utilised year-to-year, with no additional approval or fees.
How does my business qualify for an overdraft?
Generally speaking, businesses are required to have been operational and generating an income for at least six months prior to sourcing an unsecured loan. This is because the lender will need to be confident in the business’s ability to repay the overdraft.
Overdrafts for small businesses can vary in the amount loaned - anywhere from a few thousand dollars up to hundreds of thousands of dollars may be approved. For instance, Lumi offers unsecured business loans of between $5,000 and $300,000. You may also be required to demonstrate a set volume of income before being issued with a bank overdraft.
How much does an unsecured business overdraft cost?
There can be a range of fees that may be included with a business overdraft, including:
- Establishment fees
- Monthly servicing fees
- Account fees
- Interest fees
A repayment fee will also be set for your overdraft. Some lenders will utilise a monthly line fee, explained above in the above. Monthly line fees may be used instead of servicing fees and interest. Ultimately, how much an overdraft costs your business will vary on a few factors.
Still not sure if applying for a business overdraft is right for you? Compare other types of loans to learn more.