A bank overdraft is when someone or a business is able to spend more than what is actually in their bank account. If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate. If the negative balance exceeds the agreed terms, then additional fees may be charged and higher interest rates may apply.
A bank overdraft is a type of intentional short-term loan as the money is technically borrowed, the associated fees are accepted and the overdraft covered with the next deposit. Overdrafts are a source of working capital financing for many businesses.
Advantages and Disadvantages of Overdrafts
There are many advantages and disadvantages of overdraft to consider when using them as a source of financing. A simple overdraft can, for example, be useful in solving short term financial issues, but overdraft limits can be a major obstacle if you need more money than your limit allows. If you apply for an overdraft, make sure that the limit will cover your financial needs.
Business overdraft rates can vary, making it necessary to do ample research before choosing the right overdraft. One of the main disadvantages of overdrafts is that the interest rates applied to them can often make the debt larger, and so they are not always cost effective.
Whilst regular bank overdrafts are easy to find and compare, there are many more cost effective solutions which could prove to be better suited to a business’s needs. Invoice financing, as offered by MarketFinance, is one such solution.
You pick and choose the invoices you want to finance. Scales with your business.
Fixed amount added to your costs and inflexible repayment schedule.
Simple fee structure. Pay interest only on what you need.
Fixed interest rate and other hidden admin charges.
Apply online in just 15 minutes.
Lengthy application process and waiting for a decision.
Log in anytime to see your account or speak to your dedicated account manager.
Paper statements and customer service call centres.
It’s quick and easy to access funds, which means you can get the cash flow you need to get on with business. With MarketFinance, you get:
- Fast funding: quick funding decisions and set-up
- Hassle free experience: easy to use digital interface
- Help in real-time: personal customer support
- Straightforward costs: no hidden fees
- What is working capital finance?
- What is Purchase Order finance?
- What is trade finance?
- What is import finance?
- What is receivables finance?
- What is asset lending?
- What is asset finance?
- What is export finance?
- What is transport finance?
- What is recruitment finance?
- What is manufacturing finance?
- What is invoice finance
- What is factoring?
- What is spot factoring?
- What is invoice trading?
- What is invoice discounting?
- What is selective invoice discounting?
- Factoring vs invoice discounting
- The advantages and disadvantages of debt factoring
- How to compare factoring companies
- Invoice finance vs overdrafts
- Invoice finance vs business credit cards
- What is a debenture?
- What is working capital?
- What is peer-to-peer, crowdfunding and alternative finance?
- What is the Peer-to-Peer Finance Association?
- How to deal with late payment
- Top tips to improve cash flow