Finance Resources
Investment Planning
Stock Market
Futures & Options
Mutual Funds
Home » Finance » Sources of Finance » Overdraft Facilities

Overdraft Facilities

Many companies have the need for external finance but not necessarily on a long-term basis. A company might have small cash flow problems from time to time but such problems don't call for the need for a formal long-term loan. Under these circumstances, a company will often go to its bank and arrange an overdraft. Bank overdrafts are given on current accounts and the good point is that the interest payable on them is calculated on a daily basis. So if the company borrows only a small amount, it only pays a little bit of interest. Contrast the effects of an overdraft with the effects of a loan:

Overdraft: Average balance owing for the year 10,000 with an average rate of interest of 10%.

Overdraft interest for the year = 10,000 x 10% = 1,000

Bank loan: Minimum loan available 25,000 repayable after three years with a fixed interest rate of 8%.

Bank loan interest for the year = 25,000 x 8% = 2,000

Interest is payable even if the company didn't actually use the whole 25,000 - we have assumed a minimum amount of loan just for the purposes of demonstration. If the company had to borrow 25,000 but only needed 10,000 on average then it could invest the balance and earn interest in it. The position would now be:

Bank loan interest payable for the year = 25,000 x 8% = 2,000
Interest earned on 15,000 of loan invested at 4% per year = 600
Net interest payable = 2,000 - 600 = 1,400



venture, venture capital, capital, financial institutions, financial services, finance, finance in india, sources of finance

Domain Registration | Windows Hosting | Linux Hosting | Java Hosting | Virtual Dedicated Server | Dedicated Server | Reseller Web Hosting | Unlimited Windows reseller hosting | Unlimited Linux reseller hosting | Cheap Windows reseller hosting | Cheap Linux reseller hosting | Cheap Windows hosting | Best Windows hosting | Windows hosting Multiple Domains | Unlimited Windows hosting | Compare hosting plans | Cheap Linux hosting | Best Linux hosting | Linux hosting Multiple Domains | Unlimited Linux hosting | Cheap asp.net hosting | Best asp.net hosting | unlimited asp.net hosting | Cheap asp.net reseller hosting | Unlimited asp.net reseller hosting | Java Features | Cheap Java hosting | Best Java hosting | unlimited Java Hosting | Unlimited Linux reseller hosting | Java Hosting Multiple Domains| | Matargashti Full Song | Matargashti mp3 Download | Matargashti Video Download | Matargashti Song Tamasha | Prem Ratan Dhan Payo Songs Download | Prem Ratan Dhan Payo Songs mp3 Download | Prem Ratan Dhan Payo Songs Video Download | Pinga Song Download | Pinga Full Song mp3 Download | Pinga Song mp3 Download | Pinga Song Video Download | Latest Bollywood Updates | Bollywood Updates | Prem Ratan Dhan Paayo Songs Download|
© ProfitGuruOnline-2024. All Rights Reserved.