Benefits of Overdraft ReplacementPublished on 1st February 2019 2019-02-01T12:00:00+00:00 - Last update on 17th March 2020 2020-03-17T16:03:24+00:00
Need help managing your finances or coping with an unexpected expense? Your first reaction might be to contact your bank and arrange an Overdraft Facility to fit around your current banking arrangements. However, although it is a useful short-term finance solution, this particular form of financing has become increasingly difficult to obtain. This is why more and more SMEs are choosing to apply for Overdraft Replacement instead. Overdraft Replacements, or Alternative Overdrafts, are another form of short-term business finance that offers your business access to Line of Credit, without the need to involve your bank account. So if you’re looking for a short-term term finance solution to help resolve uneven cash flow, settle operating costs or fund existing business projects, here’s why you should consider applying for an Overdraft Replacement.
- Offers access to a Line of Credit
- No usage restrictions
- Flexible Criteria
- Deferred repayments
How much money could my business borrow through using an Overdraft Replacement?
An Overdraft Replacement facility offers your business access to a Line of Credit that enables you to instantly withdraw funds from an agreed allowance, much like a credit card. This allowance has a credit limit which is based upon your business’ past income. In addition, you’re under no obligation to use any of these funds and are free to decide how much to withdraw. Therefore, you can use these funds as and when the need arises, providing you don’t exceed your credit limit as doing so may incur an overdraft penalty.
What can Overdraft Replacement be used for?
Overdraft Replacements are short-term business finance solutions that typically do not carry any usage restrictions. Although this means it can be used to provide funds to any area of your business, many SME owners typically use this form of finance to pay staff, settle utility bills, meet tax demands, finance inventory, fund project phases, or any other operating expense. Therefore, how you decide to use these funds is entirely up to you, and giving you room to manoeuvre when you need it most.
What does my business need in order to qualify for an Overdraft Replacement?
Overdraft Replacement can be either secured or unsecured, meaning they are suitable for a range of financial situations. Secured agreements typically use assets such as equipment, machinery, vehicles or stock as collateral, which, in turn, gives lenders greater confidence to provide a larger credit limit and more favourable terms. On the other hand, unsecured solutions don't require you to present collateral but can be more difficult to obtain as a result. But, nevertheless, if you would prefer an unsecured product, you may need to offer a Personal Guarantee in order to earn the lender’s confidence.
In addition, you’ll need to provide lenders with a number of documents to support your application. This allows lenders to gain a stronger understanding of your business’ financial situation and how you operate. Just some of the documents you may need to provide can range from your latest/past bank's statement, your business' Profit and Loss statements, sales reports, collateral documents and inventory management reports to customer orders.
Plus, you’ll also need to give lenders' permission to review your business' credit profile and credit score. Lenders often review this in order to determine the risks that are involved and the likelihood of your business repaying (or not) the funds that have been withdrawn on time. As such, some of the factors they’ll look into will include whether you have any outstanding CCJs, Arrears, Accelerated Payment Notices and if you have a reliable history settling your debts. If there are any issues, be upfront about them. Should the lender discover any issues that weren't disclosed by you initially, it may affect the credibility of your application. Although possessing a weak credit score won’t always be used against you, it may affect the interest rate you’re offered. Therefore, the stronger your credit score the less interest you’ll need to pay, and vice versa.
How does my business repay an Overdraft Replacement?
When settling an Overdraft Replacement, you only repay and get charged interest on the funds that you’ve withdrawn. Plus, you can fully repay the funds that you’ve borrowed straight away if you prefer, but many agreements look to you doing so inside 30 - 90 days. Once they’ve been repaid, you can go on to withdraw and repay these funds on a revolving cycle, ensuring that you always have instant access to external funding. Therefore, this feature allows Overdraft Repayments to act as a buffer which gives you the confidence to achieve your goals, even during the most trying of times.
Looking to apply for an Overdraft Replacement?
Whether you’re looking to smooth out your cash flow, support an ongoing project or cover an unexpected expense, applying for an Overdraft Replacement facility could provide the answer. Offering your business access to an allowance, Overdraft Replacement offers you the confidence and the means to pursue all of your goals. All you need to decide is which lender to apply to. Thankfully, we’ve already done the hard work for you. So, if you’re looking for a short-term finance solution which will grant you access to a Line of Credit for any purpose, apply for an Overdraft Replacement today, or find out more with Rangewell.
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