Invoice finance or business overdraft – that is the question

Please note that an invoice finance facility is often more appropriate for long-term funding than an overdraft which is likely to cost more than an overdraft and be less flexible.

Overview of an overdraft facility

An overdraft is a borrowing facility attached to your bank account, set at an agreed limit. It can be drawn upon at any time and is ideal for your day-to-day expenses, particularly to see a business through cashflow problems.

• Difficult for new or small businesses to qualify
• Personal guarantees are needed to attain an overdraft
• Banks often request extra security such as charge on a directors home
• An overdraft is meant to be a short term source of finance and should not relied upon long term
• Overdraft can be ” called in” or cancelled or removed at any time
• An overdraft is only meant to cover the odd cash shortage and should not be over relied up as part of a business strategy
• An overdraft is flexible and you can liaise with your bank manager to open and close a facility on request.
• An overdraft is quick to arrange
• Overdraft can be expensive and actually very costly if a facility maximum passed.
• Interest and charges vary from bank to bank
• There are no charges for paying of an overdraft and cancelling the overdraft facility
• If an overdraft is extended often extra fees apply
• You can only seek an overdraft from the businesses main banker.
• An overdraft is to all businesses types.