A great number of bank accounts include some form of overdraft facility. The purpose is to allow the account holder to access funds beyond what they hold in the account, up to a specified limit. It is essentially a line of credit that you prearrange with the bank for use at those times when you need extra cash. Overdraft facilities are commonly available for both personal and business accounts.
Similar to personal overdraft facilities, a business overdraft is a prearranged spending limit with your bank. Many businesses find an overdraft useful for those times when cash flow is a problem for a short period of time. Overdrafts are not a good option for funding larger needs, such as capital or expansion expenses. For these needs it is less expensive to obtain a separate business loan.
Business overdrafts may also be subject to more fees than a personal overdraft. Examples include fees to open the overdraft, to renew the overdraft, or sometimes even a fee for not using the overdraft. If you have a business account and want to make overdraft arrangements make sure you fully understand the costs involved beforehand.
When used judiciously, overdraft facilities can be a great help in managing the occasional financial shortfall. Whether for a personal or business account, always prearrange a spending limit with your bank and make sure you fully understand all of the costs and fees associated with use of the overdraft.
Avoid Being Charged Overdraft Fees