What To Do If Your Overdraft Is Removed Or Your Overdraft Is Reduced
My overdraft has been reduced! Panic? Don't there are alternative forms of finance.
Bank overdraft has always been a traditional source of funding for businesses of all sizes. However, recent economic events have caused banks to become more conservative in their approach to granting overdrafts which has had an effect on many businesses.
There are also certain limitations with traditional bank overdrafts that mean that the level of funding does not necessarily grow in line with expansion of your business.
In recent times we have heard of example of overdrafts being unable to keep pace with the requirements of businesses and these circumstances include:
- Businesses being unable to secure a bank overdraft due to being a start-up without adequate security.
- Existing users of bank overdrafts being unable to secure increases in their existing overdraft in order to support further growth causing working capital restrictions.
- Bank customers having their overdraft reduced creating a funding gap that they need to fill with an alternative source of finance.
- Bank customers having their overdraft removed completely causing severe cash flow problems and even failure of the business.
In all of the above cases, if your overdraft has been reduced or withdrawn, there are alternative sources of funding that are in most cases freely available as an alternative or a top up to bank overdraft facilities.
Invoice finance facilities such as factoring and invoice discounting can release more funding than is likely to be available through a traditional overdraft facility. Granting such facilities works in a very different way to a bank granting an overdraft. An invoice finance company will be far more interested in the nature and quality of the outstanding sales invoices rather than the tangible assets and financial history of the business that they will be funding. This enables invoice finance companies to be far more flexible in granting factoring and invoice discounting facilities to businesses that may not qualify for a bank overdraft.
Overdraft and invoice funding can work together, with the invoice finance working in tandem to an existing bank overdraft (they can be from different providers as well). Therefore, if you are unable to secure a large enough overdraft or if your overdraft is unexpectedly reduced by your bank you could top up your funding requirements by operating an invoice finance facility in parallel with an existing overdraft facility. This invoice finance facility does not need to be offered by the same bank that is providing your bank overdraft. Indeed, many of our customers argue that it is preferable to source your invoice financing facility from an alternative company to your bank as this spreads the risk of having all your funding removed should anything happen to your bank or should they take a more negative view of the risk which you present to them and subsequently reduce or remove your bank overdraft. There are a large number of independent invoice finance companies that are backed by significant organisations that can provide funding as an alternative to the traditional bank route.
In terms of the cost of invoice finance, in some cases this can be very competitive with an overdraft but you should bear in mind that you can often access funding through invoice finance that would not be available via traditional bank overdraft. Our expertise is in shopping around on behalf of our clients in order to find them the best possible deal: REQUEST INVOICE FINANCE QUOTATIONS.
Therefore, in summary if your bank overdraft is removed or reduced you do not need to panic as there alternative sources of funding that are almost certainly going to be able to make up any short fall in your requirements. This funding can be provided instead of the bank overdraft or in tandem.
Glenn Blackman MBA MCIM writes regarding invoice finance and related matters at: Glenn Blackman's Invoice Finance Blog. Glenn is also a Partner in FundInvoice Limited, a specialist invoice finance brokerage.