What is an alternative overdraft?

It might be one of the most common forms of small business funding, but is an alternative overdraft the right product for your business?

Included as part of a standard business bank account, an overdraft is one way of accessing extra money when needed. It can also be used as a short-term buffer should you run into any cashflow issues.

However, the credit crunch has resulted in some banks reducing or removing the overdraft facility that they offer. Meaning small business are looking for alternative – and easily accessible – sources of finance to work as a day-to-day safety net.

Alternative overdrafts options

To help small businesses access the money they need when they need, let’s look at a few alternative overdraft options:

Merchant cash advances

This is applicable to businesses who accept payment using a card machine and works in a similar way to a loan because merchant cash advances are based on future card sales. Working with a business’s card payments provider, previous transactions are analysed to come up with an advance amount that is fixed – this might be one week’s average revenue, for example. The benefit here is that you will know the amount you will have to repay upfront. The terms on these repayments are flexible and are taken as a percentage of your future sales.

Revolving credit facilities

Very similar to a traditional bank overdraft or an unsecured loan, in the case of revolving credit facilities the lender offers a pre-approved credit limit that allows to access funds as and when they are needed up to that limit. These facilities will usually come with an initial setup fee but, most commonly, interest is only paid on the cash you actually use.

How Funding Bay can help

Funding Bay is a finance introducer with unparalleled industry experience, and the team can put business owners in touch with the lenders who will best suit their business’s requirements. This means that you can benefit from personal, jargon-free guidance.

Ultimately, they help SMEs raise capital and find the relevant finance product for their specific needs – enabling business owners to concentrate on the day-to-day running of their company rather than losing time worrying about cashflow.

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