Source Of Short Term Finance: Bank Overdraft

Append below features of Bank overdraft, the advantages and disadvantages of using Bank overdraft:


Features & Salient Points

  • Simplest and most flexible type of short term finance for most business;
  • Given a maximum limit;
  • Interest is charged only on those utilized;
  • Unutilized amount is charged a small % of commitment fee;
  • This facility is given on top of what the owner has in his/her current account;
  • Generally about 2%-5% above the lender bank’s base lending rate. Premium spread like 0.25% to 0.75% are given by the lender bank to their high valued customers



  • Flexible because the borrower can reduce his overdraft as and when he wants by merely banking into his current account which has the overdrawn amount;


  • Is repayable on demand and normally the borrower need to provide security/collateral for the overdraft facility.

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