Merchant Overdraft or overdraft facility is best suited for frequent cash inflow. Businesses typically need money to avail cash discounts by paying upfront or on time, extend credit to customers, pay off vendors or meet seasonal demands. Unsecured Merchant Overdraft Loans from Equitas are the best solutions for these needs.
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MSMEs that meet the following criteria are eligible for ‘Merchant Overdraft’
The term ‘Overdraft Facility’ refers to a tool through which you can withdraw money from your current or savings account despite zero balance in your bank account. Every bank & non – banking financial company offers this amazing facility to its customers. Overdraft facility is a kind of short term loan which is to be repaid by the customers within the assigned time frame.
In accordance with the financial institution’s terms and conditions, creditors may collect interest rates that the debtor is required to pay back. The interest rates offered by creditors are fixed and not fluctuating.
Taking extra money from the financial institutions (using the overdraft facility) is similar to taking a loan from the bank. In order to avail of the overdraft facility, some clients have to take approval by the creditor.
The overdraft facility is robotically turned on when permitted clients take out additional money from their bank account and the balance in their account becomes negative. However, the clients who take authorization from the creditors have to submit a request for it. They can submit the form by applying it though application form on website as well.
An Overdraft Facility in which security is mortgaged is contemplated to be secured overdraft. In contrast, an overdraft facility that is taken in opposition to a bank account is contemplated to be an unsecured overdraft facility.
When you borrow a business loan from your bank, you will get the amount sent straight to your account. Similarly, when your account is authorized from the bank for the same then you’ll be given an applied overdraft amount or overdraft loan.
In case, you require money immediately and you are already permitted for the overdraft facility then when you will be able to withdraw money from your account. “It will go directly in your bank account. Still, you can only withdraw money up to the approved Merchant Overdraft.”
You have to pay interest to your bank from the time you have received an approved overdraft amount.
As the debtor’s ledger can change on a daily basis so the amount you have borrowed requires to be estimated on a regular basis. The debtor can pay back the overdraft amount without giving prior information to the bank.
Overdraft amount is offered for an approved limit and this can be diverse for each debtor.
Interest Rate is estimated on a regular basis and is charged on the overdraft amount used by the debtor.
There are no prepaying fees you have to pay to the bank. If you want to pay back the overdraft amount before the time limit then you can pay it altogether.
It has no minimum repayment on a monthly basis but the amount you use must not exceed the Merchant Overdraft and also do not delay your repayment of overdraft amount otherwise it will have an effect on your credit history.
It offers flexibility of repayment. You can pay back whenever you want to!
So, anyone can avail it on the basis of secured or unsecured overdrafts. The debtor can be self-employed, individual person, SMEs who take small business lines of credit loan.
The Merchant Overdraft is specifically designed for businesses that lie in the category of traders, retailers, service providers, etc.
Merchant Overdraft is an extension of an overdraft (OD) facility wherein the bank assigns a limit under which the borrower can withdraw. While a loan is granted one-time based on the borrower’s profile, it is a non-revolving credit facility, unlike a Merchant Overdraft. Also, a loan has a fixed amortisation schedule with a fixed or floating interest rate.
Merchant Overdraft facility has a pre-sanctioned limit, beyond which a corporate borrower cannot go. This is unlike an overdraft facility, wherein the borrower is allowed to withdraw funds over and above his account balance. In a nutshell, a Merchant Overdraft is a subset of an overdraft facility.
Letter of credit (LC) is a product in trade finance wherein the bank or the financial institution gives a guarantee to the seller’s bank in that trade. This guarantee means that if the buyer fails to pay the seller, then the LC issuing bank will make the complete payment. However, the Merchant Overdraft is a funds withdrawing facility, in which the borrower can withdraw money within the pre-agreed sanctioned limit.
As a corporate borrower who has used the Merchant Overdraft facility, now is the time for repayment. It is ideally advised by money managers and financial advisors to repay the amount withdrawn as soon as possible and don’t delay it unless necessary. This is because the interest charged will be lesser when you repay it early, thereby decreasing the total interest outgo.
|Mean rate and Interest rate range for the quarter Oct 2022 – Dec 2022|
|Segment||Mean interest rate||Interest rate range|
|Min Rate (in %) p.a.||Max Rate (in %) p.a.|
|• Mean rate = Sum of rate of interest of all loan accounts / Number of all loan accounts.|
|Annualised Percentage Return (APR) for the quarter Oct 2022 – Dec 2022|
|Segment||Min Rate (in %)||Max Rate (in %)|
|Type of Loan||Segment||Effective Rate Of Interest (p.a.) linked to External Benchmark Rate|
|Floating||Merchant Overdraft||10.50% - 21.00%|
* Market Linked Benchmark (MLB): External Benchmark Rate is arrived based on Repo Rate published by RBI. Rate is published at https://rbi.org.in/home.aspx