Overdraft loans are a flexible form of borrowing that allows businesses to withdraw funds from their current account up to a pre-approved limit.These facilities provide quick access to funds for working capital requirements, inventory purchases, or other business expenses. Overdraft loans are often used by small and medium-sized enterprises (SMEs) to manage cash flow and avoid expensive loans or debt traps.
Features Of Overdraft Loan
Overdraft loans offer several features that make them an attractive financing option for businesses in India. One key feature is the flexibility to withdraw funds up to the pre-approved limit, allowing companies to access working capital loans as needed for working capital, inventory purchases, or other expenses. Overdraft loans are often offered at competitive interest rates, with interest charged only on the utilised amount rather than the entire limit. Overdraft loan interest rates are quite low and competitive. Many banks provide overdraft facilities with minimal documentation and quick approvals, making the process hassle-free for borrowers. Additionally, overdraft loans typically do not have prepayment penalties, enabling businesses to repay the borrowed amount at their convenience. These features, combined with the ability to manage cash flow effectively, and the right overdraft loan eligibility makes overdraft loans a popular choice among small and medium enterprises.
Advantages of Overdraft loan
The main advantages of an overdraft loan are:
- Flexibility: Overdrafts provide immediate access to extra funds when needed, allowing businesses to manage cash flow and cover unexpected expenses.
- Control: Borrowers can withdraw funds up to the pre-approved limit, giving them full control over how much extra they can use. The limit can be easily increased or decreased as needed.
- Pay only for what you use: Interest is charged only on the utilised amount, not the entire limit. The interest rate is linked to the prime rate, so it fluctuates with market conditions.
- No monthly costs: Many banks offer overdrafts with no initiation fee, monthly service fee, or minimum repayments, as long as the limit is not exceeded.
- Protective buffer: Overdrafts act as a financial safety net for businesses, providing access to funds for working capital, inventory, wages, equipment repairs, and other needs.
- Revolving credit: Once repaid, the full limit becomes available again, allowing funds to be drawn down and repaid on a revolving basis.
- Minimal paperwork: Overdrafts often require less documentation compared to traditional loans, with quicker approvals.
Types of Overdraft Loans
Overdraft loans are offered by various banks and financial institutions, catering to different financial needs. Here are the types of overdraft loans:
- Purpose-Based Overdraft: Some banks offer an instant overdraft facility for specific purposes like GST/tax payments with minimal documentation.
- Overdraft Against Fixed Deposits (FD): Banks offer overdraft facilities against fixed deposits, allowing customers to withdraw funds up to a certain limit.
- Personal Overdraft Loans: Some offer personal overdraft loans with flexible repayment tenures and interest rates starting from 13.50%.
- Business Overdraft Loans: Banks offer overdraft loans to businesses for managing cash flow and working capital requirements.
- Overdraft Against Securities: Some banks offer overdraft facilities against securities like shares, bonds, and other assets.
- Overdraft Against Property: Banks offer overdraft facilities against property, allowing customers to use their property as collateral.
How To Apply
To apply for an overdraft loan, follow these steps:
- Check Eligibility: Check the overdraft loan eligibility criteria for the overdraft loan, including the required documents and credit score.
- Choose the Type: Select the type of overdraft loan that best suits your needs, such as a personal overdraft or business overdraft.
- Gather Documents: Collect the required documents, including proof of income, identity, and address.
- Apply Online: Apply for the overdraft loan online through the bank’s website or mobile app.
- Submit Application: Submit the application with the required documents and wait for the bank’s response.
- Verification: The bank will verify the documents and credit score before approving the overdraft loan.
- Sign the Agreement: Sign the overdraft loan agreement and receive the loan amount.
- Utilise the Loan: Utilise the overdraft loan for the approved purpose and repay the loan as per the agreed-upon terms.
Why Opt for Lendingkart for Best Financing Options?
Lendingkart offers a range of benefits that make it an attractive choice for businesses seeking financing options like business loans. With a superfast processing time of just 72 hours, Lendingkart provides quick access to funds without requiring collateral. The platform offers flexible loan tenures, minimal documents, and low interest rates, making it an ideal choice for small and medium-sized enterprises (SMEs). Additionally, Lendingkart’s commercial loan eligibility calculator helps businesses check their eligibility criteria and documents required for the loan process. With a strong reputation and being trusted by over 3,00,000 businesses across 4100+ cities, Lendingkart is a reliable partner for businesses seeking financing solutions. Whether it’s MSME loans or MUDRA loans, Lendingkart is there for you.
NOTE: No processing fees are being charged by Lendingkart before disbursement of the loan amount. Any individual claiming otherwise must not be entertained. Please report such activity on 