An entrepreneur looking to start a new business or considering expanding their existing business needs funding to achieve their business goals. At that time, a person would consider getting a business loan or overdraft line to meet their working capital needs. Both financial products provide financial assistance to their borrowers. At the same time, the two products have different properties and differences.
A business loan is also known as an unsecured loan. However, in some cases, business loans can be guaranteed and require collateral to be presented to the lender. This loan is useful to achieve various business objectives such as expanding the business, meeting the need for working capital, buying real estate or land, buying equipment or machinery or hiring staff, training employees, stocking raw materials, increasing inventories and stocks, etc.
An overdraft is a line of credit that allows a person to withdraw money from the checking account even with a zero balance. This overdraft facility is useful for meeting urgent and short-term business needs and goals. The interest rate or overdraft fee charged on withdrawal is determined by the financial institution that benefits from this facility and varies by bank. Also, you can borrow money in addition to your account balance.
1. Definition: An unsecured loan or a fixed loan amount which is borrowed for a specific period, against collateral (in case of a secured loan), and is repayable along with interest through EMIs.
2. Type of Loan: It is a Borrowed form of Capital.
3. Rate of Interest Charged: On the sanctioned amount of loan.
4. Availability: As a loan for Long-term.
5. Method of Repayment: By way of EMIs.
6. Calculation of Interest Rate: Monthly Basis.
7. Amount of loan or Borrowed Funds: It depends on the business requirements, the applicant’s profile, applicant’s credit score, etc.
8. Should the applicant be an account holder of the bank?: No, it is not necessary to be the account holder.
1. Definition: An amount that can be withdrawn even in case of zero bank balance in the account.
2. Type of Loan: It is basically a Credit facility.
3. Rate of Interest Charged: On amount withdrawn.
4. Availability: As a fund for the Short-term.
5. Method of Repayment: From the deposits in the bank.
6. Calculation of Interest Rate: Daily Basis.
7. Amount of loan or Borrowed Funds: It depends on the amount of money present in the current account, in relation to the bank.
8. Should the applicant be an account holder of the bank?: Yes, the borrower must be an account holder.