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Business Term Loan vs Overdraft

SME Business Term Loan vs Overdraft

SME Business Term Loan is a traditional term loan that you can repay on a regular basis at a fixed rate for a certain period of time. Most Business Term Loans are used to fund specific purchases or investments you make for your business. It became a popular form of financing because they are simple, flexible and easy to apply for.

What is the difference between a Business Term Loan & Overdraft Facility (OD?)

Businesses may encounter unexpected events and unexpected expenses. In order to cover such expenses, a business may need short-term funds to be available at a short notice.

An Overdraft Facility (OD) helps to ensure that funds are available in the event of an accident. An overdraft is a lending facility that a bank provides to its current account holders, allowing them to withdraw money more than the credit balance in their accounts. However, the withdrawal can only reach a certain amount that is the overdraft limit, which depends on the credit rating of the customer and bank’s policies.

The main difference between Business Term Loan and Overdraft Facility are Business Term Loan is for long-term arrangements and overdrafts are used for short-term financing needs. Business Term Loan allows SME businesses to borrow a larger amount of fund. In Overdraft Facility, businesses may borrow up to the overdraft limit. Taking a Business Term Loan allows SME to plan their company cash flow easier and more predictable. This is because businesses know their schedule of payment and know how much the amount they need to pay back. Overdraft is different. Banks may change the limit at any time, most of the banks will conduct an “annual review” of all its customers’ overdraft, and the bank may or may not approve it.

See more: SME Business Loan to check loan eligibility today.

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