Business Overdraft (OD) Loan | Dukandar Overdraft Facility
Business Overdraft (OD) Loan | Dukandar Overdraft Facility
Blog Article
When it comes to financing a business, both overdraft loans and traditional loans offer advantages. However, understanding the differences between them can help you decide which is better suited to your business needs.
Business Overdraft Loan A business overdraft loan provides flexibility by allowing businesses to withdraw more money than what’s available in their current account. The primary benefit is that interest is only charged on the amount withdrawn, not the full overdraft limit. It’s best suited for short-term cash flow management, such as covering payroll, restocking inventory, or handling unexpected expenses.
Pros:
- Flexible Usage: Funds can be used for various purposes, and withdrawals can be made whenever needed.
- Interest on Used Amount: Interest is calculated only on the funds withdrawn, making it a cost-effective option for short-term borrowing.
- No Fixed Repayment Schedule: Repayments can be made at any time, provided the business stays within the overdraft limit.
Cons:
- Higher Interest Rates: Overdraft loans typically have higher interest rates than traditional loans.
- Limited Loan Amount: The overdraft limit may not be as high as a traditional loan, which could restrict larger purchases.
Traditional Business Loan A traditional business loan offers a fixed amount of money that businesses must repay over a set period. It’s ideal for long-term investments, such as purchasing equipment, expanding operations, or launching new products.
Pros:
- Larger Loan Amount: Traditional loans provide larger amounts, which are beneficial for major business expenses.
- Lower Interest Rates: Compared to overdraft loans, traditional business loans generally come with lower interest rates.
Cons:
- Fixed Repayment Terms: Traditional loans come with fixed EMIs, which may put pressure on cash flow.
- Less Flexibility: Loan funds are disbursed once, and there’s no option to withdraw funds as needed.
For short-term, flexible financing, a business overdraft loan is ideal. However, for long-term investments and fixed projects, a traditional loan may be more beneficial.
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