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2 mins Read | 1 Year Ago

Overdraft Facility - Overview, Features And Benefits

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Business owners often find themselves in situations where they require more funds for the business to run smoothly. Such pitfalls may stall and stop business operations for a while, which isn’t good for any business, large or small. Any interruption in the business means money is lost. When you, the owner of a business, find yourself at a loss of funds, you can easily rely on an Overdraft Facility. This is provided by ICICI Bank to ensure that your immediate capital needs are met and your business is not impacted.

What is an Overdraft Facility? An Overview!

An Overdraft (OD) is a credit facility, which is offered by a number of banks like ICICI Bank. It lets a borrower take an OD Loan for financing business expenses. This facility allows borrowing money from the bank, even if their Savings or Current Accounts do not have funds. As it refers to an extension of a monetary limit which is given by banks, the money which is withdrawn is actually “overdrawn”. Through this facility, you can avail a certain limit of funds that varies from bank to bank and depends on the customer’s relationship with any bank. In exchange for this facility, which is essentially like a loan, banks charge you interest, but only to the extent of the funds you utilise, out of the total amount permitted.

Features of an Overdraft Facility:

The key features of an Overdraft Facility relevant for business owners are:

  • An Approved Limit of Credit - In business lending by banks, an Overdraft Facility is given to borrowers according to a fixed limit, which may change from one borrower to another

  • The Rate of Interest – The interest on a Loan through an Overdraft is only charged based on amounts used by a borrower

  • No Charges on Repayment - There is always a charge for repayment on any loan you take. However, in an OD, there is no such charge that borrowers have to pay

  • Repayment Anytime - Unlike other loan repayment terms, an OD offering allows you to repay borrowed amounts at any time. There is no fixed EMI structure. Nonetheless, certain lenders providing an OD Loan for business may insist that you make payments at certain/specific times.

Know the benefits of an Overdraft.

All banks including ICICI Bank, provide Overdraft facilities. If you have a short-term need for finance, you can easily avail this facility. Here are its main advantages:

  • Business owners can avail an Overdraft Facility for their financial needs

  • An Overdraft Facility is easy to avail, with loans being sanctioned quickly, without much paperwork and long procedures

  • It is a flexible way to get credit, which you can use when required

  • With an Overdraft Facility, you only pay interest on the amount you utilise and not on the entire loan approved

  • For small businesses in urgent need of cash, Overdrafts give you the ideal financing solution. Sudden expenses can be managed smoothly.

The Overdraft Limit

When you wish to be approved for a loan through an Overdraft, you should know how much you can get from this facility. The Overdraft limit refers to that amount or the limit of credit offered by a bank. This amount is additional (to your bank balance) which can be withdrawn by you and used. Different banks set different limits when they grant Overdraft facilities. This largely depends on the customer, their financial standing and creditworthiness.

Conclusion:

Overdrafts are useful tools for managing cash flow issues in the short-term. They should never be relied on as long-term financing solutions. It is crucial that you understand the terms and conditions of Overdrafts, including repayment and interest. It is also vital to monitor your Account regularly to avoid overdraft fees and over usage.

 

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