Every business needs a steady cash flow to keep it running at its apex. Cash flows are intermittent. All businesses crave for growth and this gives them more advantage. For customers to come, everything must be in place and consistent. Therefore, for your cash needs, fast growth and development, you need funds and you can get funds through a bank overdraft. Get access to finances to solve your short-term needs and give your business more capabilities. 

What is bank overdraft 

It is a financing for individuals from SME, corporate sectors and other sectors in Kenya to manage and fill their cash flow gaps. Here banks allow you to draw more than what is available in your account. Customers waiting to collect debts honour this type of financing to keep their working capital obligations at a consistent level. They also know bank overdraft as a financing rendered to customers to help them meet their day-to-day capital engagements. 

Conditions

1. Most banks operate based on customers providing a security when their salary is not channelled to the bank
2. They charge interest on the amount collected/drawn 
3. Renewal is mostly a year for most banks.

How does an Overdraft facility work?

If you get an overdraft account with a bank, you will receive the overdraft you apply for, just as you receive loans. When you have been pre-approved for the overdraft, you can withdraw money whenever you need it. You can withdraw up until the agreed limit. By withdrawing the funds, you increase your outstanding on the account and only decrease when you deposit funds into the account. From the time you borrowed until you repay, you will be charged interest by your bank.

Overdraft system allows you to repay money in full or partial. After repayment, you can also withdraw money again until the limit of the overdraft is reached.

Eligibility criteria

1. 18years and above
2. Possess a national ID
3. Have a valid bank account 
4. own a valid phone number
5. Must have developed and kept good accounting conduct for months(this peculiar for companies)

Requirements for individuals 

1. Filled and signed application form
2. National ID card/KRA PIN/passport
3. Bank statement covering six months
4. Email address
5. If secured, provide a security details
6. Customer’s physical location 
7. Utility bill
8. Valuation report
9. Certificate of incorporation 
10. Reasons for drawing overdraft 
11. Guarantors details if requested for

Requirements for companies

1. Properly signed application form
2. National ID and PIN copies of all directors
3. Three (3) years audited account 
4. Guarantors personal guarantees
5. Cash flow projection for 12months
6. Six months bank statement 
7. Copies of valuation reports
8. Certificate of registration 
9. Recent management account 
10. Debtors and creditors aging
11. Copy of amount returns
12. Company PIN and VAT
13. An open account 
14. Proposal for borrowing 
15. Audited accounts

Rates and fees

1. Interest rate
2. Favourable negotiation fees
3. Commitment fee (Most banks charge this)
4. Price prime rate (charged by some)
5. Facility fee(some banks charge this)

Features

1. A budget for short-term financing 
2. A simple financing process
3. Very convenient to operate and monitor
4. Interest is charged on amount drawn
5. You repay when you have the money
6. They allow joint borrowers to draw overdraft

Benefits

1. Competitive interest only charged on amount 
2. One can access both secured and unsecured overdraft
3. Some banks offer overdraft in Kenya in dual currencies 
4. Gives you immediate cash 

Who qualifies for a bank overdraft?

Anyone from 18years and above and earning a reasonable amount of money can get an overdraft loan.

How do I get a bank overdraft?

To get an overdraft, you need to have a salary account with the bank in question. For self employed, you also need to open and operate an account with the financial institution. You can go further with the process by presenting all other necessary requirements. 

Conclusion 

Overdraft facility allows a borrower to apply and withdraw funds in his/her account and repays when the fund is available. They charge you interest on the amount drawn and used not the whole limit. The borrower can take an unsecured overdraft without using collateral. However, if the borrower takes an overdraft against his/her assets as collateral, then it is a secured overdraft. Assets used can vary, and each bank can demand a unique asset for an overdraft. Also note that the interest rates charged and overdraft amounts limit approved by banks vary depending on the collateral.