Watch the limit: A business overdraft can get you out of a tight spot, but it should be used with caution. Photo credit: Unsplash
Business needs and conditions can change very quickly and at short notice, especially during such uncertain times.
SME owners who often find themselves struggling with short-term cashflow crunches can consider opting for a business overdraft to get out of tight spots.
Here are five banks that offer them.
Overdraft amount: Up to S$500,000.
Who can apply: Not specified. But you do need a DBS Business Account to use the overdraft facility.
What it entails: You can opt for secured or unsecured business overdrafts. You get immediate access to funds, and pay interest only on the amount used.
Fees and charges: Not specified.
In a nutshell: Sounds like a reasonable option, and the limit of S$500,000 is quite high.
Overdraft amount: A minimum amount of S$70,000 and a maximum amount of S$300,000.
Who can apply: Sole proprietorships, partnerships and private limited companies that are Singapore-registered businesses with 50% or more local shareholding.
They need to have operated for at least three years, and a turnover between S$750,000 to S$21 million.
What it entails: This unsecured business overdraft does not require collateral, only personal guarantees.
You also need a Standard Chartered Business Account to operate the overdraft facility. An annual review will be conducted on your overdraft facility.
Fees and charges: The business overdraft board rate is at 9% per annum. The facility fee is 1.99% of approved limit (minimum S$500), while the annual fee is 1.50% of approved limit (minimum S$500).
A restructuring fee of S$250 and late fee of S$100 apply. There is no fall-below fee as long as the limit is in place.
How to apply: Find out what documents are required, as well as the terms and conditions, and frequently asked questions here.
In a nutshell: To be honest, the criteria sounds a tad unrealistic.
Overdraft amount: The amount is not specified for this revolving credit line.
Who can apply: The website does not specify specific criteria for businesses.
What it entails: You can opt for secured or unsecured business overdrafts, and opt to have a SGD or USD account.
For secured overdrafts, you can leverage existing assets such as commercial or business property, fixed deposits or private residential property to get access to funds.
The flexible credit line allows you to draw down on your account limit. Interest is only payable down to the number of days you require the funds for.
Fees and charges: The website gave a simple example on how to calculate interest for a S$100,000 overdraft.
For instance, if you draw down on the S$100,000 and top up the account after 30 days (and assuming the interest is 6.5%), the interest payable would be S$100k x 6.5% x 30/365 = S$535.
In a nutshell: No limit is specified, but hey, at least you get some help on how to calculate the interest.
Overdraft amount: The amount is not specified.
Who can apply: SMEs with business and financing purposes that are Shariah-compliant (i.e. not derived from interest, gambling, gaming, manufacturing or trading of non-halal products, conventional banking or insurance, and entertainment, stockbroking or securities share trading activities not permitted by Shariah.
What it entails: Flexibility in managing your cashflow and ready access to funds in either SGD or USD.
Fees and charges: An excess interest charge of 3% per annum + prescribed interest charge or 5% per annum + Prime, whichever is higher, subject to a minimum of S$20.
The minimum interest charge is S$20. If your cheques are unable to be cleared, you also need to pay S$50 per SGD cheque or item, and US$30 per USD cheque or item.
In a nutshell: There isn’t much information on the website, and some of the products sound the same (but yet are different), so it’s best to check this out in person.
Overdraft amount: Up to S$200,000.
Who can apply: Locally incorporated companies that have been operating for at least two years with at least 30% of the company owned by Singaporeans or permanent residents.
What it entails: It’s a collateral-free (unsecured) business overdraft for SMEs that offers easy access to funds. You only pay interest on what you use. You also get a cheque book for greater convenience when accessing funds.
Note that guarantor(s) are required to support the loan.
Fees and charges: Not specified, but terms and conditions apply.
How to apply: Click here to get started on your application.
In a nutshell: Sounds fairly reasonable, but you do need to check on all the fees that the OD may entail.
Like any other type of loan, be it secured or unsecured, a business overdraft must be used with caution although it offers the user quite a lot of flexibility.
Bear in mind that although there is no fixed loan tenor, the interest rate is usually much higher (about 20% or so) than that of a term loan.
More importantly, the bank has the right to demand that you repay the OD at any point in time with little or no notice. An OD also comes with an annual overdraft fee, monthly interest, as well as penalty fees (for instance, if your account goes into excess or if you are unable to pay back the outstanding amount stipulated by the bank).
With this in mind, it is best that you check that the bank is able to offer some degree of flexibility when it comes to payment schedules.
An OD may also come with various caveats such as hidden fees, so make sure you get your doubts clarified so that your interests as a borrower are protected.
However, an OD may work if you have fairly good repayment behaviour and are sure you can pay the monthly interest.
If you are still worried, a joint account may be a good option as it allows you to share the debt responsibility with another person.
All information correct at time of publishing. However, information and promotions stated are subject to change at the discretion of the banks. Please contact the respective bank directly if you have any queries or require any clarification.
Belinda loves thinking about random stuff, and collecting useless bits of facts and trivia. She often roots for the underdog, and believes the world needs more happy endings.