Security or guarantees for funding are subject to individual lender requirements. Typically, no security by way of property or assets may be requested for an overdraft facility.

Interest on an overdraft facility may be at a fixed or a variable rate. The decision as to which type of interest rate is applicable may vary depending on the lender. A fixed interest rate overdraft may have the rate fixed for a set term or period. After that time the rate may be reviewed. A variable interest rate overdraft may incur rate changes – up or down, on a monthly basis.

This type of funding is very versatile and flexible. It may be arranged for a fixed term or as an facility. The term and other conditions may be negotiated between the lender and the business. The term established may be set as required to meet the business’ requirements. Where the purpose of the funding is a short-term requirement, a set fixed term may be requested. Ongoing facilities can be established to support businesses over longer periods. Individual lender guidelines will determine when a review of an ongoing facility is undertaken.

No. The major banks have traditionally been the main source of this type of facility. The facility can be attached to the main transaction account held by the entity with the bank. But banks are not the only lenders that offer this form of funding. Non-bank lenders also provide this type of funding.

No. The interest charged on this facility is only for the amount used during chargeable period, usually monthly. If only a portion of the total overdraft limit is used in a month, then interest is only charged for that portion. If the overdraft is not drawn on in a particular month, then no interest would be payable. Fees and charges will be applicable and these will vary according to the bank or non-bank lender.

Interest is charged only on the portion of the facility drawn down on. Typically, interest is charged on a monthly basis but this may vary with the lender. Where the overdraft is established by the bank where the transaction accounts are held, the interest charge would be a direct debit to the account. Non-bank lenders may have their own guidelines and arrangements for interest payments.

Yes. Cash flow shortages are one of the most common reasons that an entity would seek to set up this type of funding arrangement. The benefit is that interest is only charged on the amount used. Where cash flow is unpredictable, this type of facility may be seen as a back-up measure and provide assurance and confidence for the operator.

Where an entity needs to purchase stock which will be sold, and the costs redeemed at a later date, this may be a suitable funding product. The requirement may be for a short term and varying amounts of credit required over a period. Restocking is a popular purpose for this type of facility. The suitability of any commercial funding product for a particular should be considered on an individual basis.

There are a number of differences between an overdraft and a secured or unsecured loan. Loans are established over a fixed term. Overdrafts may be short-term measures or an ongoing facility that can be drawn on as required. Interest on loans is calculated on the full amount borrowed over the loan term. Interest on an overdraft is only charged on the portion used. Secured and unsecured loans are typically sought for the purchase of tangible or intangible goods and services. Overdrafts are more flexible can be sought for purposes such as cash flow shortages. The interest rate is different for different types of funding.

Yes. All businesses may apply for this type of loans. Approval is subject to individual lender decisions and the specifics of the business and the application. New businesses may seek this type of funding to support the operation in the initial stages. Issues around term, interest rate and if any security is required will be based on individual circumstances.

The interest charged on this facility is typically treated as an expense and is tax deductible. The fees and charges would be tax deductible.

There are a number of commercial funding options which operators can consider when financing is required. The need and individual circumstances and requirements may determine which product is best-suited to the operation at that time. Secured and Unsecured Commercial Loans are possible alternatives to this type of funding.

The purpose for the facility would be discussed with the lender during the application approval process. The purchase of equipment and business assets is typically financed by asset acquisition products including Chattel Mortgage, Leasing, Commercial Hire Purchase an Rent to Own. Where the price of the equipment is below the minimum loan amount for asset acquisition products, an overdraft may be approved for the purchase.

The minimum and maximum limits for this type of funding will vary across the lending market. Each lender will have their own guidelines in this respect. The amount approved for an individual enterprise will be dependent on the application assessment by the lender.