Are you businessman? Consider unsecured dropline overdraft

Adhil ShettyBankbazaar.comEvery business understands the significance of having easy access to finances. Irrespective of the size of the business, liquidity crunch in the business world is something every businessperson would have confronted and familiar with.Business owners usually depend upon business loans and personal loans with high interest rates to meet short-term finance requirements. An overdraft facility extends a helping hand to those who have current accounts with good transactions. However, overdrafts have their own set of problems, as most of them are offered against mortgages and for a very short tenure. Unsecured dropline overdraft facility is a relatively new product line aimed at businesspersons to help them meet their irregular funding requirements. You may need to understand the product and its eligibility criteria first before deciding to opt for it.Understanding dropline overdrafts and unsecured dropline overdraftsAn overdraft means drawing excess funds from your bank account, just like a short-term loan. With a business overdraft, you can withdraw money from your current account up to a certain pre-determined limit. This money can be used for various business requirements like working capital or business expansion and you need to pay an interest on the extra funds used. The interest rate on an overdraft is linked to the base lending rate of the bank.Dropline overdraft is a step ahead of this facility and combines the features of term loans and overdraft facility. In other words, they are long-term overdraft loans that can be extended for a period of 10 years. Unlike traditional overdrafts, they do not have a yearly renewal charge—only a one-time processing fee, like a term loan. Usually banks offer overdrafts as well as dropline overdrafts after taking a collateral security such as property, insurance policies, or other financial instruments like stocks or mutual funds to cover their risk. Unsecured dropline overdraft is the third-generation overdraft, where the bank offers dropline overdraft with no collateral. All you need to do is furnish your personal guarantee as a business owner as security for the overdraft. Banks and NBFCs offer unsecured dropline overdrafts of up to Rs. 50 lakhs to business owners with a good financial track record. Eligibility criteria for unsecured dropline overdraft Any businessperson owning a proprietorship, partnership, or private limited company, and a current account with good transaction history with the bank is eligible for an unsecured overdraft. Banks have their own eligibility criteria for approving an unsecured dropline overdraft. These criteria primarily cover the number of years the business has been operational and the time limit for having a current account. On an average, banks require a minimum of three years in business and a clean track record. Banks also seek income-tax returns of the business along with the audited balance sheet and profit & loss accounts to facilitate the overdraft limit. Advantages of unsecured dropline overdraft The unsecured dropline overdraft comes with quite a few advantages:• It comes without any collateral guarantee obligations.• There are no monthly repayments required as for traditional loans.• The interest is charged only on the utilized amount. Usually the interest rate is charged at the end of the day as per the closing balance.• Rate of interest in overdraft is lower than or comparable to rates of personal loans for self-employed individuals and other unsecured business loan.Top banks offering unsecured dropline overdraft Unsecured overdraft facility is now available with most public sector as well as private banks. Some of the popular unsecured dropline overdraft facilities are as follows:Deutsche Bank Small Business Overdraft: Small business overdraft by Deutsche Bank is a collateral-free facility ideally suited for meeting the working capital needs of small and micro enterprises engaged in manufacturing, processing, preservation of goods, or rendering services. The scheme does not seek any collateral security but offers a credit limit between Rs. 10 lakhs to Rs. 50 lakhs for 12 months, renewable at the end of the period. It comes with a default interest rate of 24% per annum and a credit maintenance fee of 1% of the sanctioned limit payable annually.ICICI Bank Smart Business Loan: Smart Business Loan (SBL) is an unsecured overdraft facility offered by ICICI Bank. It offers an overdraft facility of up to Rs. 25 Lakhs for all companies having a current account with the bank, subject to eligibility criteria. The scheme is offered to companies engaging in either manufacturing, service, or trading. The scheme offers collateral-free working capital loan for ranging from Rs. 2 lakhs to Rs. 25 lakhs. The borrower needs to pay back at least 5% of the utilized limit every month. As per the scheme, the interest is charged only on the outstanding amount.Kotak Mahindra Bank unsecured overdraft: Kotak Mahindra Bank offers K-Value, an unsecured overdraft of up to Rs. 50 Lakhs, to current account holders based on their financial health. To be eligible for the overdraft, the account holder’s business must be in operation for at least the preceding three years. You will need to furnish income tax returns for the previous two years, the balance sheet, and profit & loss accounts to be eligible for the overdraft. The bank also seeks proof of ownership of commercial properties.Instead of opting for a term loan, availing an unsecured dropline overdraft could be a convenient way to raise finances when faced with a financial crunch.