A business overdraft is an ideal financial option to cover short-term finance needs, particularly seasonal requirements and unexpected expenses. The business overdraft is still the most common type of business finance used in Australia, and operates as a line of credit facility that is most commonly used to cover working capital requirements.
Working capital is used to cover everyday business expenses such as rent, utilities and wages. It indicates the liquidity of a business and is usually represented as a ratio:
Working capital ratio (Current ratio) = CURRENT ASSETS: CURRENT LIABILITIES A working capital ratio of 2:1 is generally considered desirable however you should take into account the type of business you run and how variable your cash flow is when deciding on the most appropriate working capital ratio for you.
Your working capital usually comes from your business cash flow. If you have a new business, or if your business operates in a seasonal industry, you may need some assistance covering the day-to-day costs of your business.
A business overdraft works by providing access to an agreed amount of money. You can draw down up to your limit at any stage, and there are no repayments required as long as the amount you have drawn down and the interest charged does not exceed your agreed limit. The overdraft facility operates on a variable interest rate with a cheque account attached, and you may or may not need to provide security or collateral, depending on the lender.
Our credit advice process has been specially designed to help your understand what financing options are available for those who need help with cashflow for their business. Read more about how we work at Our Process or Contact Us now to arrange a consultation with one of our experienced Credit Advisers.