When Is A Business Overdraft Facility Cheaper Than A Loan?

As a general rule, the interest rate charged by a bank or building society for a business overdraft is higher than for a business loan. Therefore, you probably think that you will end up paying more interest on an overdraft facility than a loan.

Well, this is not always the case but why? Let us give you an example. If you have an overdraft facility of let’s say £100,000, you may only use it for say a week or so in the month. Therefore, you will only pay overdraft interest for the number of days that you are overdrawn and the interest rate will be calculated on a daily basis based upon the amount that your business was overdrawn on each particular date. The interest rate is not calculated based upon the overdraft limit.

Hopefully, your business current account will fluctuate in and out of credit as you receive payments from your debtors and make payments to your creditors.

However, if your business current account remains permanently in an overdrawn position, it is at that point that you may wish to consider consolidating some of the overdraft onto a business loan as the interest rate is likely to be less on the latter borrowing facility.

If you feel that your business could benefit from an overdraft facility, the natural inclination is that you apply for such borrowing through your existing bank. However, you may wish to consider contacting another bank to see if it will offer you the overdraft facility you require but at a lower rate if interest. After all, if you do not ask then you do not get!

If you are looking for refinance then why not get in touch with us at your earliest convenience and we will do all that we can to help you source a suitable lender. We look forward to hearing from you at your earliest convenience.

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