The benefits of overdrafts for SMEs looking to grow

Small businesses need working capital to grow. There is no way around it. You cannot reinvest back into your business without steady cash flow. Restrictions to cash flow can happen at any time, jeopardising the daily operations of your business and creating challenges when looking to expand.

Many are familiar with overdrafts from their personal bank accounts, but may not be aware that business overdrafts are also a great way to fund working capital for their business. An overdraft is a line of credit, from which you can borrow and repay as needed, only paying interest on any outstanding balance. This gives your business the flexibility to borrow and pay back throughout the year when you need it, instead of a fixed lump sum every month. Some providers may also charge fees.

Business overdrafts benefit small businesses in many ways.

  1. Flexibility of the product: It is readily available, allowing you to draw down funds when you need it, only paying interest on what you use. You can make repayments at any time giving you complete control over your facility.
  2. No settlement fee: You are not charged to pay your overdraft in full.
  3. Helps you keep a track record: An overdraft helps small business owners to maintain a good payment history, minimising the risk of a direct debit or cheque bouncing.

Overdraft facilities gives businesses the opportunity to reinvest back into the business.

A few years ago, visiting your local bank to ask for a business loan or overdraft was the only option, but since 2008, small businesses have struggled with this traditional source of finance. Banks typically rely on a ‘one size fits all’ model which does not suit many modern businesses.

These new providers are able to supply better terms for business overdrafts, a simpler application process and quick decisions, creating an entirely new borrowing experience. The best providers are using their increased efficiency to offer their clients better rates and new products, exhibit greater flexibility when it comes to security and provide more transparent terms.

Whether it’s managing the seasonal cycle of business or investing in expansion, overdrafts are better suited to businesses that want to grow.

Fortunately, businesses today have a new option: alternative lenders are becoming the go to choice for small businesses.

You can find this article featured on Start Your Business Magazine here.

Written on in Borrowing Featured