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This is an agreement with your Bank where the account is allowed to go overdrawn up to a pre-arranged limit. This limit will be agreed by the bank for a maximum period of one year and will have to be re-negotiated at the end of that time.
An overdraft should be used to cover short term cashflow issues such as the time you are waiting for your customers to pay you. It may well be that the bank will ask you to prepare a cashflow forecast to demonstrate how much the business needs to borrow via this overdraft.
The bank will charge an arrangement fee of around 1% to 1.5% of the amount and agree an interest rate. One of the advantages of an overdraft is that you only pay interest on the amount you actually borrow, not on the full amount of the facility agreed.
We are often approached by banks to assist their clients with preparing financial information prior to the agreement of a finance facility, and we have developed valuable expertise in this area. If you would like impartial assistance in obtaining business finance, please get in touch. |
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