Supporting the Case for an Unsecured Business Overdraft

Every business needs additional cash from time to time so it can grow and stay on top of various expenses. 

If you find yourself feeling stressed about bills or if you need a cash injection to pay for materials or stock, a business overdraft could be the answer. Also known as a line of credit, this is a fast and easy cash flow solution for businesses of all sizes. 

Right now, there are a range of flexible options for secured or unsecured business overdraft facilities. Take a look at the multiple benefits of using a business line of credit this way. 

Why have a business overdraft?

There are a number of reasons why a business may require an overdraft facility. You may be experiencing: 

• Poor or lumpy cash flow 
• Long waits for payment from clients
• Suppliers with short terms or no lines of credit
• A lack of credit from the bank 
• Overdue ATO payments
• The need for insurance against future cash flow shortages (it’s always easiest to secure credit when you’re not under financial pressure and doing so can cost you very little)

Almost every type of business can benefit from an overdraft, especially those in construction, transport, retail, labour hire and hospitality. 

Your overdraft is designed to be a short-term solution — for example, a construction business may use its overdraft facility to place an order for building supplies after signing a contract with a client. The owner will know they have the money coming so it’s not a risky move to dip into additional funds. 

These days, this small business line of credit solution is largely ‘industry agnostic’. With some very niche exceptions, most businesses that apply for an overdraft are assessed on merit, not industry. 

The other good news about a business overdraft is that it’s now possible to complete an application in minutes and have access to your line of credit within 24 hours. If your cash flow is causing frustration, this straightforward process to secure a business overdraft can come in handy. 

How does a business overdraft compare to a business loan or business credit card? 

Many businesses come to us because they are confused about their options when it comes to accessing additional funds. Here’s a quick breakdown of how an overdraft differs from a loan or a credit card: 

• A business loan gives you a set amount of cash, which you will repay in instalments. You can choose how much to borrow and the time period you can spread repayments across, but you can’t usually redraw on the amount you have paid off. Most businesses apply for loans to purchase items like vehicles or machinery, or to consolidate other debts. 

See more: Secured & unsecured business loans.

• A business overdraft is a revolving line of credit with a predetermined limit. It is generally connected to your transaction account and you can make minimum repayments or clear the outstanding balance in full. It’s a great backup for your business because it’s there when you need it. 

• A business credit card is used to buy items and pay for them later. Some credit cards offer interest free periods so if you pay them off in full you can use the service for no cost. However, there are annual fees, minimum payments and late payment fees to factor in. A credit card may not be competitive in terms of interest rates and may not accommodate the fund limits your business requires. 

Unsecured vs secured overdraft

When you have an unsecured business overdraft, you’re not ‘borrowing’ against any assets such as vehicles, property or equipment. This arrangement can be helpful for businesses and companies that need to pay for materials and equipment before starting a job. 

In the past, opportunities for unsecured overdrafts were limited but flexibility around this option has increased in recent years. 

Access a market-leading business overdraft solution

Each client we work with is different and applications are reviewed on a case-by-case basis but at darkhorsefinancial.com.au we offer a highly competitive overdraft solution. 

This product: 

• Is unsecured, so you don’t need to own property or provide property as security to quality
• Is ‘low doc’ for limits up to $500,000
• Can accommodate up to $1 million as a business line of credit (conditions apply)
• Only takes minutes to apply for and can be settled within 24 hours
• Offers market-leading rates
• Does not charge establishment fees 
• Does not charge line fees or management fees
• Only charges interest on the funds in use 

Offering a genuine revolving line of credit with a 5-year term, this product is the closest option to a major bank overdraft but our clients prefer it because the application process is lightning-fast and doesn’t require endless amounts of documents and income evidence. 

Businesses can apply for this overdraft if they have previously been declined by a bank and also have the option to increase their limit as business turnover expands. 

Client case study

Our client ‘A/B Construction Products’ (name is withheld for privacy reasons) recently came to us seeking $300k in an unsecured business overdraft with no financials, no line fees, no establishment fees and no history of positive responses from lenders.

A business supplying products to the construction industry, the client was experiencing long waits for accounts to be reconciled. Although its financial position was strong, it wanted to secure a line of credit as insurance. 

Our recommended unsecured overdraft solution was a perfect fit as there were no charges to establish the revolving line of credit and interest is only charged on funds drawn. An application was placed and the overdraft facility was established in 48 hours.

The client made a smart move by applying for a business line of credit before the need for it actually arose. This is because credit is generally cheaper to secure when the need is not urgent. 

Business overdraft FAQ

Take a look at some commonly asked questions about arranging a business overdraft: 

What is a revolving line of credit?

Also referred to as an overdraft, this term describes the ability to draw against a set limit of funds and then repay and redraw endlessly up to the pre-approved limit.

Do I lose access to my business overdraft if I don’t use it?

Your overdraft is there when you need it and there is no expectation to draw down on it each month. It will not be withdrawn if you don’t use it, but talk to us about the ongoing fees involved to make sure the arrangement will align with your budget. 

Is there a minimum usage or dollar amount that has to go through my business overdraft each year?

There is no minimum amount of use for most business overdrafts. If you’re seeking an overdraft as an insurance policy in case you need it in the future, we recommend choosing an option with the lowest fees to minimise costs until your line of credit is required.

What can I use funds from my overdraft for?

The items you purchase with your overdraft are not limited to any specific goods or services. You can spend money to pay staff, buy materials, settle outstanding accounts or pay your tax bill. 

What happens if I pay off the balance of my overdraft?

If you clear your overdraft balance down to $0, your full credit limit will be available for when you next need it.  For some overdrafts, you could be charged a line fee which will be a percentage of the limit. For this reason, it’s important to consider how much you intend to use your overdraft and what fees are payable along with interest to understand which is the best solution for your business. 

Can I qualify for a bank overdraft and an unsecured overdraft? 

It is possible to have a bank overdraft and an unsecured overdraft.  Non-bank solutions often don’t require financials as part of the application process, can be set up within a matter of days and are a great compliment to other existing lines of credit. 

Are there any establishment fees for an overdraft?  

The establishment fees for a business overdraft depend on the lender. They can reach as high as several hundred or even several thousand dollars but options with no establishment fees do exist. Talk to us today to find out more. 

How to apply for an unsecured overdraft

If you need fast access to a flexible cash flow solution, darkhorsefinancial.com.au can help. Talk to us about our business cash flow solutions by sending us a quick enquiry here.