What You Should Not Use A Business Overdraft For

A business overdraft facility is really designed to provide you with finance on a short-term basis. For instance, it could be used to purchase stock that is turned over quickly so that, ideally, your business current account fluctuates into credit on a regular basis.

However, it should not really be utilised to meet a long-term borrowing requirement such as to buy property, vehicles or purchase plant and machinery. One of the reasons for this is that the interest rate charged on a business overdraft is likely to be greater than the rate you would usually expect to pay for the likes of a commercial mortgage or a business loan.

If you are buying a commercial premises, then it is quite likely that you will be faced with having to repay the borrowing over a number of years in view of what may well be a sizeable sum of money that is advanced to your business by your bank or other lender. The term could often be 10 to 20 years and you do not really want to be repaying monies on an overdraft facility over that sort of term. In any event, your bank would usually expect to see your business current account fluctuating in and out of credit with use of the business overdraft facility being made lightly.

If you are buying vehicles then the maximum normal term is up to around 5 years so, again, you would not normally fund vehicle purchase by way of an overdraft facility unless you were, for instance, waiting for long term funding for vehicle purchase to be sorted out and had an urgent need to buy a vehicle perhaps to benefit from a discount on the purchase price. Once say the long term funding for buying the vehicle is put in place the monies could potentially be used to liquidate the business overdraft.

The same thing really applies when you buy plant and machinery with such borrowing normally being repaid over say 3 to 10 years.

If you have the need for long term borrowing for your business then why not get in touch with us here at Commercial Mortgage Link and we will put you in contact with a broker who has many years experience in helping source and arrange such borrowing from an extensive panel of lenders. We look forward to being of assistance.

Mortgage Advice Compare Mortgage Lenders