Business Overdraft Business Loans

Related Categories: Business Loans, Startup Business Loans, Commercial Finance/Lease

Business Overdraft

Running a tight ship in terms of your finances is a must if you want to succeed in your business efforts. For Australians who are currently business owners, even the best run companies may face sudden expenses that make taking out loans or borrowing money impractical. This may be because of the time element or the fact that the expenses themselves are too small to warrant the expenses associated with a loan, but large enough to exceed the current amount available in the company itself.

In addition, there may be times when even the best of accounting procedures does not take into account all of the money available for making the necessary payments. It is during these times that a business may take advantage of what once was considered a poor practice in terms of maintaining good financial credit, the business overdraft.

What is Business Overdraft?

A business overdraft is essentially pulling out more money that the company has in their respective bank as long as the bank has agreed in advance. Interestingly enough, most banks have business overdraft policies designed to forgive a company if they draw out more money than what they have in the account. The same policy is often available to regular customers and works as good protection for the times when mistakes are made in terms of knowing the finances left in a particular account.

Overdrafts often occur when it is assumed by the company a previous check has already cleared or a payment made to the account has been noted by the bank and therefore too much money is then pulled from the account. Such mistakes happen so often that banks have now instituted policies that allow for certain amounts to be overdrawn without penalty.

Advantages and Disadvantages of using Business Overdraft

There are several advantages that having this type of protection will offer, particular for a business that conducts a great many transactions during the day.

Security: In situations when too much money has been pulled from the account, there is no additional fee if the amount is lower that the set limit.

Emergency Cash: For businesses that need to pay an expense such as a new piece of equipment that taking out a traditional loan would be too impractical, this is a potent option.

Cover Payroll: Generally speaking, most employees believe that their payroll is important enough to be covered which is why paying it even if the account is overdrawn is very important to the health and morale of your business.

The main disadvantage to a business is that a bank will actually charge a fee for allowing the practice of overdrawing on the account. Plus, there are limits to how much can be overdrawn without further penalty, so when it is used to cover a payment the company will have to be very careful about its use. Another issue may involve a coincidental overdraft which this policy is designed for protection. In any event, the business overdraft is something that needs to be used judiciously and under the right circumstances to basically get a loan for a much cheaper interest rate.

For Australian business owners however, the option of having a business overdraft can be very important.

 

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