Overdraft

What is an overdraft used for?

Overdrafts are often what a business uses to help day-to-day short-term requirements and as it grows incrementally. Loans, leasing or hire purchase agreements are in most cases better suited to larger longer-term purchases, such as investment in plant and machinery, computers or transport.

While it is almost always the case that an entrepreneur will benefit from the knowledge, insight and network of advisers who deal day-to-day with banks and other finance providers, businesses themselves should cultivate relationships with banks and other finance providers, who may help meet future financing requirements rather than just the immediate needs.

Obtaining a loan or overdraft

To obtain a loan or overdraft, management must prove to the lender that the business will generate the income and cash to both repay the facility according to the terms of the loan, and service the loan by meeting interest payments. Market conditions and regulatory requirements, such as those that mandate responsible lending to viable businesses, may also impact the ease with which a business can access a loan or overdraft.

It is likely (though not always the case) that the business will need to provide security for any money borrowed against other personal or business assets.

Next steps? You may wish to seek advice.

Together on the journey

Access to the right kind of finance at every stage in your growth journey enables businesses like yours to invest, grow and create jobs. That’s why the British Business Bank and ICAEW’s Corporate Finance Faculty, and partner organisations representing finance and business, have created the business finance guide. Find out more about our partners