Dropline Overdraft Facilities can be termed as Smart Loan against properties which are generally offered from 1 Year to 15 years of tenure. The Dropline Overdraft facility benefits the borrower by reducing the original limit according the tenure sanctioned to the borrower. The overdraft facility can be used on monthly basis, quarterly basis, half-yearly or even yearly basis too as per the need of the borrower. Dropline overdraft facilities have only a one-time processing fee like a normal loan against property loan. Dropline overdraft facilities are mostly offered by banks and only a few NBFC’s offers this product in collaboration with some Bank as Dropline overdraft facility involves lot of banking arrangements. Dropline Facility is offered to self-employed professionals and self-employed non-professionals. Money can be withdrawn from overdraft account and can be used for business expansion or any other business requirements and the interest is paid only on the used amount whereas in loan against properties the interest is being on the full loan amount whether the funds are used or not by the borrower. Overdraft facilities do not have any kind of renewal charges like traditional overdraft facilities.
Nowadays unsecured Dropline overdraft facilities are being offered by few banks and NBFC’s where there is no requirement of collateral and known as unsecured Dropline overdraft. Unsecured Dropline overdraft facilities are limited to businessmen only with good banking habits and with an expanding financial status according to their books of accounts.
This product is good for the businesses where there is a day to day requirement of working capital and is better than a traditional working capital in the form of cash credit of overdraft. In case of traditional working capital a borrower has to hypothecate their stocks, debtors, etc. Also in traditional form of working capital customer has to go through a process of renewal of facility on a yearly basis. This renewal process is not free for any borrower and the charges charged by every bank vary from o.25% to 0.50% of the working capital limits. The renewal process includes the analysis of financial documents again to decide the drawing power which can be offered at the time of renewal of the working capital limits. Although the interest is being charged on the used amount in the traditional form of working capital is also similar to the Dropline overdraft facility. There is one more major difference in traditional working capital and Dropline overdraft where the borrower requires a stock audit on a quarterly or half-yearly basis failing which the penalties are implemented in the account of the borrower such as an increase in the interest rates or freeze on account can also take place. Working capital has the end usage restrictions and the funds can be used only in the business for which the working capital limits are sanctioned by the bank whereas in Dropline overdraft facilities there are no end usage restrictions and the funds can be used other than the business like it can be used for purchase of new property, renovation of house, medical emergency, marriage in family, extension of business or starting a new business, etc. Dropline overdraft facility is a long term loan where it is sanctioned for a definite term whereas in working capital or traditional overdraft it is a short term loan and Banks has the right to change over the limit or request that the limits are paid back at any time.