How much overdraft to ask for?

Oedo

Hi folks,
Our biz account is usually around the 15 - 20k mark, with incomings/outgoings around the 10k mark per month each. We've to open a new business account and want to ask for an overdraft while doing so. What would be considered a normal or reasonable amount to request for an overdraft amount?

Thanks

pedroeibar1

Only you know the answer to that! Ignoring the security aspect, overdrafts are treated as bank lending and are granted on need, or in some cases (for quality customers) as a cushion to aid cashflow. You will need to show your bank why you need an O/D facility and what it is wanted for. Have you cashflow projections? Remember, overdrafts are essentially short-term working capital and “on demand” so they can be called in at any time.

Bandara

If you have a company credit card it would be advisable in my opinion to consider giving it back to the bank as they consider the exposure of a credit card to be double that of the limit. I.e. A standard 5k business card would have an exposure in the banks minds of 10k, even though you only have access to 5k of funding

Therefore by giving your card back you can ask for a overdraft/additional funds to an overdraft of 10k. Which is double the benefit for you as it's an actual 10 additional cash for the company to be able to use and benefit from.

As an aside why do you 'need' a overdraft? I'm asking from the banks point of view, you will need to have a reason other than 'I'd just like one'. Something like your buying additional stock at a cheaper price to capitalise on it at a later seasonal time. Ie you buying 5k of sun cream at half price in Feb and will sell it at double margin in June. Basically give them an excuse to be able to award you the over draft

Hope that's of some help

power101

I would say somewhere between 3-6 months of outgoings as a safety net. It also obviously depends on how much your bank if willing to offer you. It might be worthwhile having a friendly chat in the bank to feel them out about it beforehand. There's no point applying for 60k when they definitely wont give you that

Oedo

We don't have a particular requirement for an overdraft except wanting a cushion there if we go through a bad month or two. Is this reason enough?

We would like to do some advertising at some stage, would this be seen as a better reason?

I was thinking around the 10-15k mark would be great.

power101

Absolutely that would be reason enough. Every good business should have a backup plan in case of unforeseen problems and it would not be in any way unusual for people to apply for an overdraft as you plan to.

Bandara

power101 wrote: »

Absolutely that would be reason enough. Every good business should have a backup plan in case of unforeseen problems and it would not be in any way unusual for people to apply for an overdraft as you plan to.

Have to completely disagree with you here

You go into your bank and ask for an overdraft that you don't need "as a cushion" and they are straight away going to tell you 'no, but if it's gets to a time where you need it come back to us'

Banks don't like unsecured exposure, or exposure they can't actively control.

mneylon

Talk to the bank. As others have mentioned, banks won't like granting overdraft facilities unless you can show clear reasons of need eg. cash shortfall between you paying a supplier and you getting paid.

If you want to increase your expenditure for advertising etc., you might be better off getting a loan.

elastico

€50k-ish

power101

Bandara wrote: »

Have to completely disagree with you here

You go into your bank and ask for an overdraft that you don't need "as a cushion" and they are straight away going to tell you 'no, but if it's gets to a time where you need it come back to us'

Banks don't like unsecured exposure, or exposure they can't actively control.

I don't agree with this at all. The bank will absolutely give an overdraft for a long time customer if they request it especially since he's only looking for turnover of one months expenses. Banks love this exposure, it's why they offer it. It allows them to get a yearly overdraft fee and double normal interest rates on any overdraft borrowings.

If they go to the bank at a time when they need it, then its already too late. Payments may be missed, the accounts of the business may now look poor and they are now unlikely to get the overdraft. The overdrafts are monitored in any case and the bank will reflect this in how much they offer as a limit.