What is an overdraft and how can it help your business?
Cashflow is a key concern for any business, but small to medium-sized enterprises are often hardest hit when debtors and customers fail to settle their bills in a timely manner.
Figures from the Australian Securities and Investments Commission show that insufficient Working Capital was the leading cause of business failure in 2015-161.
Dun & Bradstreet data confirms that average payment days are on the increase in Australia2, what can organisations do to improve their access to short-term funds? This is where a business overdraft facility could prove vital.
Understanding business overdrafts
The term Overdraft relates to a business or company facility, whilst lines of credit are normally personal. These facilities give Businesses and Individuals access to a line of credit that extends beyond your available credit funds, ensuring you are covered for emergency expenses, late debtor payments, and other short term cash flow issues.
Business overdrafts have no fixed term, so you can use up to your credit limit whenever necessary, although you should be aware that interest and fees would apply depending on your usage.
One of the biggest benefits of business overdrafts is the speed and availability with which you can access cash. An overdraft facility enables you to withdraw funds via:
Choosing between secured and unsecured overdrafts
Business overdrafts are available as both secured and unsecured lending. An unsecured overdraft means that you do not need to pledge any assets to your financial provider in order to access the facility. Meanwhile, secured overdrafts require you to commit a range of assets, such as residential, commercial and industrial property, to give you a line of credit. Each option has advantages and disadvantages. An unsecured overdraft exposes you and your business to less risk, but your line of credit will be smaller.
Secured overdrafts allow you to access a much larger maximum loan amount. As an example, IMB Bank offers maximum unsecured business overdrafts of $20,000, while our secured overdraft facilities allow up to $500,000 - or more on a case by case basis. However, your bank will have the right to sell the assets you've put up as collateral if you're unable to repay debts on your secured overdraft.
Taking the next steps
Finding the right overdraft facility for your business will depend on a range of factors, so it's important that you discuss your needs with a specialist adviser before making a decision. If you'd like to know more about IMB Bank's business overdraft services, please contact one of our relationship managers today.
1 Australian Government, Australian Securities and Investment Commission, '16-436MR ASIC reports on corporate insolvencies 2015–16', December 20176
2 Dun and Bradsheet, 'Australian Late Payments Analysis: Worsening trade credit conditions', 2017