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If you’re a business owner, there are various instances where you might need to borrow funds. These could include expanding your venture, meeting capital requirements or simply stocking inventory. And when it comes to business finance, there’s more than a single option available in the market.<\/p>\n\n\n\n
While the most popular financing method is a business loan, you can also consider an overdraft. Not sure what an overdraft is? Keep reading to find out.<\/p>\n\n\n\n
An overdraft is fundamentally a credit facility that allows you to withdraw funds from your current account, even if your account balance is zero. Briefly put, you can borrow money over and above your account\u2019s credit balance.<\/p>\n\n\n\n
Moreover, the interest is charged only on the amount withdrawn from the account and till the time it is repaid entirely. The rate of interest is usually determined by your lender based on your repayment capacity.<\/p>\n\n\n\n
In that sense, an overdraft business loan is ideal for fulfilling any short-term business goals or overcoming an emergency.<\/p>\n\n\n\n
Now that you are familiar with the concept of an overdraft loan, the question arises \u2013 which of the two credit options is better? Let\u2019s dig deeper to find out.<\/p>\n\n\n\n
First off, business finance is a form of loan provided in a lump sum. In contrast, a b<\/strong>usiness loan overdraft is a line of credit facility where you maintain a bank account and draw funds up to a prespecified limit. And so, you can pay off the former in the form of EMIs, and the overdraft in the form of bank deposit.<\/p>\n\n\n\n Business finance can be secured or unsecured, which means you may or may not have to pay collateral depending on the loan type. On the other hand, an overdraft does not require you to pledge any collateral.<\/p>\n\n\n\n Additional Read: <\/strong>5 Ways to Use Retail Business Loans<\/a><\/p>\n\n\n\n The business loan interest rates<\/a> are calculated every month and reflected in your monthly instalments. On the contrary, the interest rates for an overdraft are calculated on a day to day basis. Hence, it affects your daily debit balance.<\/p>\n\n\n\n With business finance, you can borrow a higher loan amount for a longer tenure, which makes it suitable for financing long-term goals. On the other hand, an overdraft is best for short-term financial requirements that may arise from time to time like cash flow shortage.<\/p>\n\n\n\n Additional Read: <\/strong>Can You Get a Business Loan with Low Revenue?<\/a><\/strong><\/p>\n\n\n\n\u2022 Collateral<\/strong><\/h3>\n\n\n\n
\u2022 Interest rates<\/strong><\/h3>\n\n\n\n
\u2022 Duration\/Tenure<\/strong><\/h3>\n\n\n\n
Final thoughts<\/strong><\/h3>\n\n\n\n