Getting A Business Loan When You Have An Overdrawn Account
Just as personal checking accounts can be charged for non-sufficient funds (NSF) or unintentionally overdrawing from them, sometimes business accounts can face the same problem. It’s important to have a bookkeeping system in place and a business budget that minimizes the chances that your account will be overdrawn, but even as effective as that can be, businesses can still face overdrafts. It’s important if this happens, to deal with it as soon as possible to ensure that you are not incurring unnecessary fees. Also, having excessive overdrafts in your business account may make you appear as a high-risk borrower with lenders.
Working With Your Bank To Pay Off A Negative Balance
If you do accidentally overdraw from your business checking account, you need to work with your bank to let them know it will be paid off ASAP. Usually, they’ll be pretty understanding if you’ve banked with them for a while and have rarely had problems with overdrawn accounts. In fact, they may even waive fees in some instances. If the negative balance is pretty low, chances are at the end of the next work week that you’ll be able to get it completely paid off and return your overall balance to the minimum required. But even if you have a negative balance that may take a little longer to pay off, you can still usually negotiate with your bank to work out a payment plan.
What you should be aware of–and this is often found in the small print when you open your business checking account–is that banks can use any personal accounts you have with them as collateral if you have an overdrawn business account. Since you probably need the funds in your personal checking account to pay for personal expenses, the last thing you want to see are those funds suddenly disappearing to pay off your business overdraft. For that reason, you’re usually better off keeping your personal bank accounts at a different bank than the one you have your business accounts at. If you do have funds in a personal checking account at the same bank, you might consider opening a personal account at a mobile bank with no minimums and quickly transferring funds there.
Getting Business Overdraft Protection
Should you get overdraft protection for your business bank account if it’s offered? It depends on how your business operates. Banks can offer your business a line of credit as overdraft protection where if your balance would normally be too low to make a payment and get charged an NSF fee, it would instead activate your line of credit and draw the remaining balance from there. The issue with this is that you usually have to pay as much as 3% interest per day that this line of credit is used which translates into an APR of over 1,000%. Plus there are usually additional fees to pay for using it, and using your business overdraft protection too much can result in your account being closed.
A better idea is to link your business savings account to your business checking account and have it set up so that funds will be drawn from that before they’re drawn from an overdraft line of credit. This may have a fee with it as well, but at least you will not pay interest or bigger finance charges on it. But you should replenish your savings account as soon as possible if you do this to avoid any minimum balance fees or running low on emergency savings.
Taking Out A Loan Or Other Financing To Cover Overdrafts
Having your business checking account overdrawn or marked with NSF charges on it can make getting a loan harder, but not impossible. There are lenders that will still make unsecured loans or lines of credit to you if you have NSFs. More importantly than that, however, is the days that your account has a negative balance. The more negative balances and overdrafts that you have, the riskier that lenders will view your business profile. That said, these business loans may have a higher cost than a traditional loan, but they will help to minimize overdraft fees and help you maintain a good relationship with your bank.
Also, consider that there may be other financing options if you can’t get an unsecured loan or line of credit. If you have quite a few unpaid accounts receivable invoices, you could either sell them to an invoice factoring company for funding or borrow against them in an asset-based loan. You could also borrow using fixed assets like business equipment or your business property if you own it. But there are still other options such as merchant capital advances or other business emergency financing you can tap into as well.
Is your business in this situation? GoKapital can help your company obtain a loan even if your business bank account has been overdrawn in the past. Our unsecured business loans are the perfect solution, as they fund quickly with minimal documentation. You can apply online, or if you have doubts please contact us today, and one of our consultants will explain the process and requirements.