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Overdraft Replacement for your clients

Published on 22nd November 2019 - Last update on 1st July 2020

 £5,000 line of credit secured in 2 days

For generations, the bank overdraft provided a convenient solution for small business users.

When your clients found that a late payment or an unexpected bill were causing them problems, it allowed them to dip into a cash reserve as required. They were provided by the bank your client used, and the overdraft facility would be agreed as part of their business banking arrangements.

It worked very simply - it let businesses withdraw cash that they didn’t have in their account, to use for a few days or a few weeks, and the bank would only charge for the cash actually drawn down. But when the credit crunch hit, many banks reduced or removed the overdrafts they extended to small businesses. 

This may have caused a problem for many of your clients. Unless they keep a reserve of cash in the bank, many small businesses having no easy way to access funds for the short-term. You may have seen the problems that this causes, with high-cost short-term loans being a common feature on many balance sheets.

Fortunately, there are now new solutions that can help offer the easy access to short-term funding that used to be provided by overdrafts. The simplest of these is Revolving Credit, also known as Overdraft Replacement or Alternative Overdraft Funding.

We recently helped an accountant secure an Overdraft Replacement Facility for a client in just two days. 

The challenge

We work closely with a number of accountants and help them provide funding solutions for their clients. We were recently approached by one of our accountant partners, who had a client was an IT contractor.

“I’ve worked with this client for years, and I’ve helped him build a profitable business. It is all based around his knowledge of specialised secure communication systems used by the military. He has an important contract with the Ministry of Defence that takes him off to military bases around the world.” 

He would frequently have to arrange flights to a remote location, where he would need to arrange accommodation and cover other local costs at short notice. The MOD would cover his expenses, but he would be left waiting up to a fortnight to be paid out for costs that could frequently run into £thousands. 

The costs were showing up on his return and they were eye-watering. A business might have the reserves to deal with the costs, but he was effectively a one-man operation, although he was trading as a limited company. It meant that he was using his credit cards to deal with the costs, and I pointed out to him that doing so was getting expensive.”

The accountant suggested an overdraft - but his client's bank was not prepared to offer one. 

“It was frustrating. He was the perfect candidate for an overdraft facility, and the bank would have made money on it - but they have a blanket policy that meant they just could not help.”

The accountant came to us at Rangewell to find an alternative.

Find out how Overdraft Facilities work to give small businesses flexibility

How Alternative Overdrafts work

Alternative Overdrafts offer instant access to funds, just like an overdraft. However, no bank account is involved. Instead, the provider is a lender who offers a line of credit which can be used as required. Like an overdraft, the facility will only result in a cost when it is actually used. This will be based on the amount drawn down, and the time which funds are held.

Funds may be repaid at any time, and be ready for use again.

“I saw that for the kind of temporary cash flow drains my client was facing, an alternative overdraft could provide the perfect solution. Because he could pay back what he had drawn down as soon as he had received it the costs would be under control - and certainly less of a drain than using a credit card.” 

How Rangewell helped

Overdraft Replacement funding has become a common financial solution, but costs will vary between providers. 

Getting a competitive solution for your clients is essential - which is why it pays to work with Rangewell, and take advantage of our knowledge of the entire market. 

We found a facility that could provide £5000 at 2.9% per month. 

“2.9% per month might sound a lot - and on a par with some of the more costly credit cards, but I explained to my client that the real costs would be much lower. He could repay as soon as he was paid - which meant that he would never need to draw money down for an entire month.” 

The funding Rangewell arranged:

£5,000 at 2.9% per month

However - there was only a charge when funds were actually drawn down

Arranging an overdraft replacement turned out to be cost-effective, simple and we were able to set up the facility under two days - in time for the client's next overseas callout.

If you are looking for funding solutions for your clients, calling us at Rangewell can help find the answers you need - and even provide an additional source of revenue for you. Simply contact us today and find out how you can become a partner and find business finance for your clients.

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Richard Mitchell

Richard Mitchell

Content writer
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