Pros and cons of business overdrafts

A small business overdraft or line of credit allows you to spend up to a certain limit beyond your balance, and is available with most bank accounts and business loans.

Overdraft pros:

  • Cashflow - you can draw on money when unexpected expenses arrive (or expected income doesn't).
  • It can be a cost-free safety net so long as you're not using it.

Overdraft cons:

  • Interest rates can be higher than other means of credit, so overdrafts should only be used for short term small business financing.
  • Overdraft credit may need to be secured against an asset - belonging either to your business or to you.

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