Overdraft - how to get it?
Financial liquidity provides the company with stability and enables further development. However, even in a situation where temporary problems prevent this from being achieved, the entrepreneur may find a solution. One of the most popular tools used in such cases is an overdraft facility (the so-called credit line).
Conditions for obtaining an overdraft
The basic condition for obtaining an overdraft is - which is quite obvious - having such an account. In the case of small enterprises, without legal personality, it does not matter whether it is the owner's personal account or a separate account for corporate purposes only.
Most often, banks also place an additional requirement on potential borrowers - a current account should exist in a given bank for at least 3 months. Sometimes for new clients there is a gateway in the form of the possibility of presenting the account history of the institution that was used before in the new bank.
It is also worth remembering that an overdraft facility is intended for the current needs of the company in the period of temporary difficulties. Therefore, as a rule, an entity applying for such a credit line should be characterized by relatively high creditworthiness.
The above rules apply to the general rules for granting overdraft facilities. In practice, however, individual banks may offer such products in accordance with their own internal regulations, which may differ slightly from general regulations. Therefore, before the entrepreneur decides to choose a loan from a given bank, it is worth comparing the individual offers available on the market.
The specificity of the credit line
An overdraft is a kind of increased overdraft. Depending on the level of the limit set in the credit agreement, the entrepreneur may use funds in the amount greater than the actual actual balance of his account. Debt is repaid on a regular basis - any amount added to the account reduces its level, which can be reused. On the other hand, the sum of the collected funds may not exceed the aforementioned limit set in the contract.
The amount of the permissible overdraft facility is determined on the basis of several factors. First of all, the bank takes into account the amount of current turnover on the account, the level of creditworthiness as well as the type and amount of available collateral for loan repayment. Additionally, the borrower should present the type and amount of current needs for which the funds will be allocated.
In most banks, the loan agreement is concluded for a period of 12 months. However, in a situation where the borrower turns out to be a reliable customer, the institution usually prepares an individually tailored offer, providing for the possibility of extending the concluded contract.
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As with any other loan agreement, the credit line also has interest. However, their amount is not calculated on the entire limit, but on the actual debt - therefore, the greater the current proceeds regulating the amount of the overdraft, the lower the amount of interest. Most often, interest is charged automatically from the account, therefore it is included in the credit limit.
The interest rate on the overdraft facility is determined in accordance with the variable interest rate, the amount of which is determined based on the WIBOR rate and the bank's margin.
An overdraft facility is therefore a tool that can help finance the company's current needs, also in periods of reduced financial liquidity. Thanks to the possibility of reducing the debt with every transfer to the account, the entrepreneur has the ability to flexibly control the account balance and the amount of interest that must be paid.