Advantages
• An overdraft is flexible - you only borrow what you need at the time which may make it cheaper than a loan.
• You only pay for the funds you use.
• It's quick to arrange.
• There is not normally a charge for paying off the overdraft earlier than expected.
Disadvantages
• It has to be rearranged regularly. An arrangement fee is usually payable when credit is extended, perhaps during the term of the facility.
• It can be called in by the lender at any time.
• You face administration fees if you exceed the agreed limit.
• Overdrafts may be secured against business assets - the lender can take control of these if you don't repay the overdraft.
• Unlike loans you can only get an overdraft from the bank where you maintain your current account. In order to get an overdraft elsewhere you need to transfer your business bank account.
• The interest rate applied is nearly always variable, making it difficult to accurately calculate your borrowing costs.
• An overdraft is flexible - you only borrow what you need at the time which may make it cheaper than a loan.
• You only pay for the funds you use.
• It's quick to arrange.
• There is not normally a charge for paying off the overdraft earlier than expected.
Disadvantages
• It has to be rearranged regularly. An arrangement fee is usually payable when credit is extended, perhaps during the term of the facility.
• It can be called in by the lender at any time.
• You face administration fees if you exceed the agreed limit.
• Overdrafts may be secured against business assets - the lender can take control of these if you don't repay the overdraft.
• Unlike loans you can only get an overdraft from the bank where you maintain your current account. In order to get an overdraft elsewhere you need to transfer your business bank account.
• The interest rate applied is nearly always variable, making it difficult to accurately calculate your borrowing costs.
