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Stay Ahead of Cash Flow Challenges – Get Flexible Overdraft Solutions Today!

Your backup plan for business expenses — get an overdraft limit and manage cash flow with ease.

Overview

A Working Capital Overdraft (OD) is a short-term credit facility offered by banks and financial institutions to Micro, Small, and Medium-Sized Enterprises (MSMEs), allowing them to withdraw more than their account balance up to a sanctioned limit. This facility is specifically designed to support businesses in managing their day-to-day operational expenses, covering unforeseen costs, seasonal requirements, and delays in receivables. Unlike term loans with fixed repayments, an OD facility provides flexible access to funds on an as-needed basis, ensuring continuous business operations without cash flow disruptions. It acts as an immediate liquidity solution, empowering MSMEs to maintain financial stability and respond quickly to short-term financial challenges.

Features

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Adaptable Credit Limit:

Take out loans up to a predetermined amount determined by your company's need.

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Revolving Facility:

Within the limit, the money may be taken out and paid back several times.

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Interest Only Charged on Utilized Amount:

Companies only pay interest on the amount of their overdraft that is actually used.

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Collateral Requirement:

Collateral may or may not be needed, depending on the loan size.

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Disbursal:

Fast approval and payment procedure for qualified companies.

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Renewable Facility:

Depending on repayment history and business performance, it may be renewed once a year.

Benefits

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Guarantees Continuous Business Operations:

Aids in cash flow management amid temporary liquidity shortages.

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Promotes Business Growth:

Gives companies the freedom to seize unforeseen possibilities without worrying about money.

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Financial Flexibility:

Companies are free to pay back as their cash flow permits; there is no set repayment plan.

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Boosts Creditworthiness:

Business credit scores are raised by prompt payments.

Eligibility Criteria

Working Capital Overdraft

  • Typically registered Business that has been in operation for at least one to two years.
  • New ventures are also eligible for financing based on merits.
  • Type of Business: Manufacturers, traders, service providers, or construction companies.
  • Must have a track record of successful business operations or future business potential.
  • A business current account is required.
  • A healthy credit score, typically 730 or higher should be maintained.
  • The minimum yearly turnover required by the bank's regulations.
  • Accurate financial records and GST compliance are essential.
  • There is a maximum loan amount of 25% of last 12 months’ GST turnover.
  • Type of Constitution: PVT LTD, Public Limited, Partnership, LLC , proprietorship.
  • Collateral security and without collateral security is possible based on merits.
  • The promoters, firm, or company are required to contribute as per policy.

Documents Required

  • ID & Address Proof of applicants
  • PAN Card
  • Income Tax Returns (ITR) and financial statements for the last 3 years
  • Current bank account statements for the last 12 months
  • Proof of residence and business address
  • Sanction letter and repayment schedule of existing loans (if applicable)
  • GST registration certificate and GST returns for the latest 2 years
  • Udyam registration certificate
  • Rent agreement for factory and residence (if the property is rented)
  • Statement of stocks and debtors
  • Work orders (if available)
  • Project report (if required)
  • Provisional financial statements (if applicable)
  • Company PAN card (for private limited companies and partnership firms)
  • Certificate of Incorporation (for private limited companies)
  • Memorandum of Association (MOA) (for private limited companies)
  • Articles of Association (AOA) (for private limited companies)
  • List of directors and shareholding pattern (for private limited companies)
  • Partnership deed (for partnership firms)

Frequently Asked Questions

A Working Capital Overdraft (OD) is a short-term credit facility offered by banks and financial institutions. It allows businesses to withdraw more funds than they have in their account, up to a pre-approved limit. This facility helps manage daily operational expenses, bridge short-term cash flow gaps, and ensure smooth business operations without facing liquidity constraints.

Interest on an Overdraft (OD) facility is charged daily on the amount actually used, not on the total sanctioned limit. The interest is typically billed at the end of the month. You only pay interest on the funds you withdraw, not on the entire overdraft limit.

Yes, a new business can apply for a working capital overdraft (OD). To improve your chances of approval, focus on building a strong financial profile, prepare the necessary documentation, and explore funding options such as MSME loan schemes or bank-specific programs.

No, a working capital OD is not a fixed loan. It is a type of short-term financing used to cover daily operational expenses. In contrast, fixed capital loans are intended for long-term investments.

If you exceed your Overdraft (OD) limit, you may face penalty fees, higher interest rates on the excess amount, and a potential negative impact on your credit score. Overdrawing beyond the approved limit is known as an "Unarranged Overdraft", which can signal poor financial management to lenders.

Yes, working capital Overdraft (OD) facilities usually require renewal after a 12-month period. Banks typically notify customers before the expiry date, giving them the option to extend the facility. The renewal is subject to the bank’s discretion and a review of the business’s financial performance.

Overdrafts (OD) do not have a fixed repayment schedule or EMI structure. You can repay the borrowed amount whenever you have available funds. Interest is charged only on the amount you actually withdraw and use from the OD facility.

Yes, in some cases, an Overdraft (OD) can be converted into a term loan, depending on the bank’s policies. This conversion allows borrowers to restructure their debt, potentially benefit from lower interest rates, and follow a more structured repayment plan.

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