Business Loan vs Overdraft: Which is the best for you?

Your business may require loans or funding between its lifecycle. It can be to set up machinery, clear dues, expand its reach, or for several other purposes. But the variety of options available in the market for the source of the loan can be confusing, especially between a business loan and overdraft. So here is some information about the two that can help you decide:

Business Loan: A secured business loan that you take from a lending institution in return of collateral. Usually, the tenure for these loans ranges from one to ten years. The documents required for a business loan are your credit profile, the business idea, its profit, financial status, experience, etc., and this decides your eligibility. If unsecured, the interest rate is higher for a smaller disbursal amount, but you don’t put collateral on the table.

Overdraft: This facility is offered by a lender where your business account is already active. The overdraft facility allows you to withdraw the amount more than what is present in your account. It is a revolving credit, which means that you can keep borrowing and paying it off at the same time instead of paying within a fixed tenure. NBFC offers the overdraft facility to those who have an established relationship with the lender.

While a business loan is best if you require a large amount, an overdraft is suitable for daily credit spending. The interest rates offered by a business loan is much lower than that of an OD. So, choose wisely!

Must Read: 5 Tips Women Can Follow to Get an Approval on Business Loan