💡Getting Finance Ready: "Hard Core Over Drafts".💡
First, what is an over draft facility? An overdraft facility is an unstructured form of lending from your bank that enables your business to withdraw or spend even after the balance reaches zero. " You mean I can still spend even when I have no money, sounds cool" Well, in my own personal opinion and while I see the logic in some business might on occasion need one, I don't like them and would encourage business to avoid them where possible.
They can put you in a hole that is tough to get out off. Your bank will earn more fees and interest on a business overdraft than they would from a loan arrangements so it is in their interest that businesses operate one but can also remove it without much of a challenge when the time comes.
The last line forms the reason for this weeks tip and is around the risk to the potential lender. Because they are unstructured and your bank can remove it whenever they want, and I have seen it happen, if you are operating the business inside the facility on a full time basis (which some may refer to this being "Hardcore Overdraft") - It can raise the question from a credit team "what if we lend to them and the overdraft is withdrawn, how will they repay us?!"
Suggestion here, again is future proofing by getting smart with your cash flow - If your payment terms are 30 days or more and think late payments are possible, or maybe even you just want to make sure you are covered, this is an opportunity to use finance as tool for the business. A short term 12 month working capital loan is DEFINITELY going to be cheaper or potential alternatives depending on your industry and how you collect money, invoice finance for example.
Thanks for reading, hope you it might help you but please get in contact if you have any questions on how you we can help you get out of the overdraft hole.
Gary Grimes
Managing Director at GDG Business Finance
📧 Hello@gdgbusinessfinance.com
☎️ 01 541 5447 or 085 262 7047
💻 www.gdgbusinessfinance.com
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