Recently my banker told me to opt for an unsecured drop line overdraft for my business. What is an unsecured drop line overdraft?


#1

Recently my banker told me to opt for an unsecured drop line overdraft for my business. What is an unsecured drop line overdraft?


#2

To encourage business owners, banks are offering unsecured drop line overdraft facility which does not seek any collateral security for offering the overdraft limit. All you need to furnish is a personal guarantee as a business owner as part of security for the overdraft. Banks and NBFCs are offering unsecured drop line overdraft up to Rs. 50 Lakhs for business owners with a good financial track record.


#3

Hi,

An overdraft means drawing excess funds from your bank account, just like a short-term loan. With a business overdraft, you can withdraw money from your current account up to a certain pre-determined limit. This money can be used for various business requirements like working capital or business expansion and you need to pay an interest on the extra funds used. The interest rate on an overdraft is linked to the base lending rate of the bank.

Dropline overdraft is a step ahead of this facility and combines the features of term loans and overdraft facility. In other words, they are long-term overdraft loans that can be extended for a period of 10 years. Unlike traditional overdrafts, they do not have a yearly renewal charge—only a one-time processing fee, like a term loan.

Usually banks offer overdrafts as well as dropline overdrafts after taking a collateral security such as property, insurance policies, or other financial instruments like stocks or mutual funds to cover their risk.

Unsecured dropline overdraft is the third-generation overdraft, where the bank offers dropline overdraft with no collateral. All you need to do is furnish your personal guarantee as a business owner as security for the overdraft. Banks and NBFCs offer unsecured dropline overdrafts of up to Rs. 50 lakhs to business owners with a good financial track record.

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BB Expert