Business Loans Or Overdraft: Pros And Cons

If you plan to expand your current business or start a new business, then taking a business loan or overdraft might have crossed your mind. Both of the financing products can be used to fulfill your financial requirements. 

 So, keep reading this article to know about the advantages and drawbacks of both the credit facility to help you find the right financing product for your business.

Business Loans

  • Pros
  1. You can easily borrow a massive amount for a long duration.
  2. Longer tenure leads to flexible and affordable monthly EMIs. So, there won’t be any stress on your monthly budget. 
  3. The eligibility criteria are easy-to-meet for business loans.
  4. You can quickly get competitive business loan interest rates.
  5. Business loans offer a fixed rate of interest. Therefore you know how much you need to repay.
  6. No tedious documents are required for a business loan. So, the entire application process is hassle-free.
  7. It can be availed by various entities, including individuals, women entrepreneurs, manufacturers, NGOs, traders, private and public limited companies.
  • Cons
  1. Generally, business loans are unsecured loans, but in some cases, it may require collateral.

Overdraft

  • Pros
  1. The borrower can freely decide the amount to be repaid each month.
  2. The borrower can speak to the lender about a tailored overdraft agreement and can quickly close the overdraft at any time.
  3. The application process is flexible.
  • Cons
  1. The interest rate is relatively high as compared to business loans.
  2. The current customer can only avail it from the financing institution. 
  3. Various additional fees such as application fees, monthly overdraft fees, and late payment fees are applicable.
  4. The financial institution can even cancel the overdraft without any notice. 

Conclusion: A business loan is a viable option to meet long-term business requirements. Both of the financing products have their advantages and disadvantages. So, choose the credit facility that meets all your needs. 

Must Read: 5 Ways to Get a Small Business Loan For a New Business / Startup

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