When a businessman requires fund for his business, he has two options either to opt for long term funding from bank or NBFC by taking loan against property or term loan against property or to opt for short term funding usually for one year by taking overdraft limit (OD Limit) or cash credit limit (CC Limit). Long term funding like loan against property carries lower rate of interest in comparison to short term funding like OD Limit or overdraft limit. However borrower can save interest on OD limit by depositing extra money in the overdraft account and thus paying interest only for amount utilized.
An overdraft limit is a loan amount sanctioned by the bank or NBFC to the borrower to meet his business requirements. OD limit is like a current account. An OD facility allows you to withdraw money or issue cheque up to the approved OD limit, even if there is no balance in the account. It is a short term credit facility generally for 12 month, which is renewable after every 12 months.
The overdraft limit or OD limit is the maximum amount that you can overdraw from bank or NBFC. Borrower has to pay interest on utilized amount only. Interest is calculated on daily overdrawn balance and debited to the OD account monthly.
Whatever amount you repay into the overdraft account, you can withdraw it again as long as the limit is not over utilized. That’s why OD limit or overdraft facility is also called revolving credit facility.
OD Limit Used For Uninterrupted Business Activity And Expansion Of Business: As a businessman you may have to sale your goods and services on credit to your buyer and expecting timely payment from your debtors. But due to various reason and circumstances you may or might be not getting payment on time, due to this you may face liquidity problem. Due to liquidity problem, you may be not able to make payment of regular and fixed, business expenses on time like employee salary, commission, payment to your creditors etc. Supplier may stop supplying goods and worker may go on strike. This will not only affect your business but also cause a great loss to the company. This will also affect goodwill and reputation of the company.
To come out of this situation you can avail overdraft facility or OD limit from bank, so that you may not face liquidity problem. Timely payment of your business expenses gives you great mental satisfaction and helps you to run your business smoothly. This will also increase goodwill and reputation of the company.
OD Limit Used To Meet Unexpected Business Expenses: Life is full of uncertainty. As a businessman you have to make certain expenses for which you have not made any provisions. Expenses such as road accident, death of an employee, government rules, hike in rates, taxes and fees, strike etc. require a lot of money.
If you have OD limit or overdraft facility from bank, it will help you to meet all these unexpected expenses on time and your business runs smoothly.
OD Limit Used As A Great Debt Consolidation Tool: As a businessman you may have taken so many small personal loan, business loan, gold loan etc. from bank or NBFC. These loans offered by bank or NBFC for short period of time and on high rate of interest resulting on heavy EMI. These EMI may affect your business liquidity also.
You can take OD limit or overdraft facility from bank. The rate of interest on OD limit or overdraft facility is comparatively lower than personal loan or business loan. You can pay of all your personal loan or business loan liability from your OD limit. Here you have to pay only interest on amount overdrawn by you. This will increase liquidity of your business and thus you can utilize the excess amount for the growth of your business.
There are two types of overdraft facility or OD limit provided by the bank i.e. (i) secured overdraft facility and (ii) unsecured overdraft facility.
Secured Overdraft Facility Or OD Limit: When borrower offers or mortgaged an assets to the bank as a security to avail overdraft facility or OD limit. It is called secured overdraft facility or OD limit. The assets could be deposits in the bank, residential, commercial or industrial property or shares.
If you are not able to payback overdrawn amount of the bank, then bank may stop your secured overdraft facility and bank has right to recover the overdrawn amount by selling or liquidate your assets. If in any case bank is not able to recover the whole overdrawn amount then you are still liable to pay the balance amount to bank.
Unsecured Overdraft Facility Or OD Limit: When bank offers overdraft facility or OD limit without any assets or security to the borrower. It is called unsecured overdraft facility or OD limit. Generally bank offers unsecured overdraft facility to his existing customer who has good and long relationship with the bank.
Overdraft facility or OD limit is an agreement between borrower and the lender (bank or NBFC) that regulates the term of overdraft facility or OD limit. All the bank or NBFC have their own loan eligibility criteria but there are some common loan eligibility criteria which borrower has to fulfill to avail overdraft facility or OD limit from bank or NBFC.
Following are some key important factors which would be checked by bank or NBFC to accept or reject the overdraft facility or OD limit application:
Documents required for overdraft facility or OD limit depends upon the type of business of the borrower.
Documents required for different types of business are as follows:
Currently the rate of interest of overdraft facility or OD limit is based upon marginal cost of lending rate (MCLR) plus margin on the MCLR. Bank or NBFC offers lowest or competitive rate of interest to attract prospective borrowers, due to stiff competition between bank or financial institutions.
The rate of interest on overdraft facility or OD limit varies in between 9.50% p.a. to 18% p.a. It is always advisable to compare overdraft facility or OD limit interest rates of different bank and NBFC and chose the best one which suits your need.
You may take an expert advice of LOAN ON PHONE professional consultants who will help you to choose best bank who offers you lowest rate of interest on overdraft facility or OD limit with ZERO / nominal bank processing fees.
Before taking overdraft facility or OD limit it is advisable to consider following factors:
Loan processing fee charged by the bank or financial institutions to process your loan application, valuation of the property, legal verification of the property, residence verification, office verification, due-diligence of income documents and bank statement etc. It could be a fixed percentage of your loan amount or a fixed amount.
Loan administration charges are taken by bank or financial institutions to maintain your OD account after disbursement. Some bank or financial institutions took upfront fees however some of them charged after sanction of the loan amount. So check OD limit processing charges of bank or financial institutions deeply before applying for the loan.
If you apply through LOAN ON PHONE, our professional consultant will assist you in negotiating with the banks and may get ZERO foreclosure charges for you.
|BEST OD LIMIT PROVIDERS|
|Allahabad Bank OD Limit||HSBC Bank OD Limit|
|Andhra Bank OD Limit||ICICI Bank OD Limit|
|Axis Bank OD Limit||IDBI Bank OD Limit|
|Bank Of Baroda OD Limit||Indian Bank OD Limit|
|Bank Of India OD Limit||Indian Overseas Bank OD Limit|
|Bank Of Maharashtra OD Limit||IndusInd Bank OD Limit|
|Canara Bank OD Limit||Jammu & Kashmir Bank OD Limit|
|Central Bank Of India OD Limit||Karnataka Bank OD Limit|
|Citi Bank OD Limit||Kotak Mahindra Bank OD Limit|
|Corporation Bank OD Limit||Oriental Bank Of Commerce OD Limit|
|Dena Bank OD Limit||RBL Bank OD Limit|
|Deutsche Bank OD Limit||State Bank of India OD Limit|
|DHFL Dropline OD Limit||Standard Chartered Bank OD Limit|
|Federal Bank OD Limit||Tata Capital Dropline OD Limit|
|HDFC Bank OD Limit||Uco Bank OD Limit|
|Syndicate Bank OD Limit||Union Bank Of India OD Limit|
|Yes Bank OD Limit||Vijaya Bank OD Limit|
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