Put simply, an overdraft is an extension of credit when your account balance reaches zero. This means you can continue withdrawing money (up to a limit) even when the account has no money in it. The good thing is, you only pay interest on the amount overdrawn. So you only pay interest on the borrowed money when you use it.

Keep in mind that the extra amount you can borrow is usually based on what security you can offer, your ability to repay the loan, and your financial position. Plus, there may be extra fees and charges to think about.

What are the benefits?

Here’s a quick overview of what an overdraft can offer your business:

• Finance for unexpected purchases or opportunities;
• Assisting with cash flow when you’re waiting on money from creditors;
• Variable and usually much lower interest rates than a credit card.