Smart use of business loans: Alternatives to overdrafts

Overdraft facilities are convenient, but expensive. There are now much cheaper alternatives – from flexible revolving credit to euro loans. We provide an overview.

This article is part of the special topic Banks and loans: What tradespeople need to know

Many small and medium-sized enterprises use the so-called Overdraft facility on their business account because it's easy to manage. But this convenience comes at a price: interest rates Rates of twelve percent and more are now not uncommon. In the case of a tolerated Overdraft Additional costs are added, so the total burden quickly approaches twenty percent.

Since banks usually offer overdraft facilities with variable interest rates or short fixed-rate periods, interest rate developments remain difficult to predict. Nevertheless, there are often significant differences regarding overdraft facilities. more affordable loan options It is important to find out about the exact terms and conditions before signing a contract. Here too, persistence is key. Negotiate is in vogue.

On-demand credit or revolving credit

A regular several percentage points cheaper An alternative to an overdraft facility is a revolving credit or line of credit. Within the agreed credit limit, businesses can flexible have money available. In addition, many providers agree on fixed repayment rateswhich are based on the company's financial resources. For smaller medium-sized businesses, a revolving credit facility is often particularly attractive, as the interest rate – depending on creditworthiness – usually a few percentage points under that of the dispos.

However, some banks only offer the revolving credit facility to private individuals or limit The loan amount is limited to sums such as 25.000 or 50.000 euros. In such cases, good negotiation skills are essential to reach individual solutions.

Money market or euro loan

Even a short-term one Money market or euro loan It can supplement or completely replace the overdraft facility. Some banks allow you to change your existing overdraft facility. to divide credit line, so that part of it is used as a Euro loan. Normally, the loan must be fully drawn down over the entire term. Short-term partial drawdowns must be agreed upon separately. maturities They usually range between one month and one year; any extensions should be discussed with the bank in good time.

Banks typically require a simple division of the existing overdraft facility. no new securities, Since the loan amount remains unchanged, if the Euro loan is provided in addition, any collateral required will depend on a new credit check.

Some banks also offer Euro loans in foreign currencies However, this involves exchange rate risks. Customers should discuss with their bank whether such an option, combined with currency hedging, is worthwhile in their individual case. 

The acceptance credit

Acceptance credit now plays only a minor role, but can still be a financing alternative. In this case, the bank accepts a letter of acceptance issued by the customer. Change and undertakes to provide for this to a to redeem to third partiesThe bank assumes this liability under the law of negotiable instruments only if the borrower provides the amount of the bill of exchange in time for the maturity date. Short maturities of up to three months are common.

Keywords for short-term loans

• Credit line (Credit limit): The amount provided by the lender. 
• Approved overdraftThe account holder may dispose of the agreed amount within this limit. 
• Tolerated overdraftThe bank allows an overdraft of the credit limit, but charges additional interest for this. 
• carry-over: Extension of the loan term. This usually involves renegotiating the interest rate, loan amount, or collateral. 
• More variable or fixed interest rate: Variable interest rates can change in the short term; fixed interest rates apply for the entire term. 
• Euribor (European Interbank Offered Rate): This interest rate serves as a guideline for customer interest rates on Euro loans.
• Change: A document containing an unconditional payment order, which offers a high level of security in the case of an acceptance credit. 

Here's what companies should pay attention to when it comes to short-term loans.

• Compare offers: Businesses should ask their banks to present them with different types of loans and also consider other banks. Other financial institutions often offer interesting alternatives that their primary bank doesn't have in its portfolio. 
• Realistically assess creditworthiness: If there are doubts about a company's creditworthiness, they should work with the bank to clarify the reasons. Often, measures can be found quickly to improve the credit rating. 
• Use securities strategically: Loan collateral can help negotiate better terms. It is important to have the valuation of this collateral disclosed. 

Extra tip: Don't use your overdraft for investments

Capital expenditure in the company not – not even temporarily – about the available However, this often happens in practice. Significantly cheaper investment loans are more suitable for this purpose, and these are offered not only by commercial banks but also by public development banks.

DHB now also digital!Simply click here and register for the digital German Crafts Journal (DHB)!