What you need to get a business overdraft loan

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If you’re looking for funding in the form of a business overdraft loan, you might have encountered one of these common issues:

  • You’re projecting a cash flow pinch. While you need fast access to cash for a large project or a one-off purchase, you know it will take too long to secure funding from a traditional source like a bank.
  • Maybe you’ve struggled to get a regular overdraft with your bank, or you can’t get one with a high enough limit. You may have been impacted by a recent shift in the Irish banking sector, with Ulster transitioning to AIB, who have downsized and removed some overdraft options during the transition.
  • You’re based in Ireland and want to find a provider that can accommodate your business both locally and internationally.

In this article, we’ll look at the options available for a business overdraft loan, plus why funding your business using a line of credit might be a better alternative. 

We’ll cover:

If you want to dive straight in and speak to us about our line of credit facilities, reach out to us to get started

Business overdraft loans: what are they and what are the alternatives?

If you’re looking for a business overdraft loan, the chances are you’ll start by looking at what your business bank account provider can offer. 

You usually have to be with a bank for a certain amount of time before you can get an overdraft facility. So if you can’t get an overdraft with your current bank, you won’t be able to switch to another business account and apply for one right away.

In that case, you might consider other options, such as: 

  • Business loan: This involves borrowing a set amount of money and repaying it (plus interest) over the repayment term. Providers of business loans include:
    • Banks: The loan options available include term and commercial loans for property, plus the most popular and flexible option, the stocking loan. With a stocking loan, you repay the interest each month, then pay the balance at the end, or sooner if you like, with no penalty. The maximum term for loans from a bank is usually 5-7 years. Examples of banks in Ireland that offer business loans include:
      • PTSB¹
      • Bank of Ireland²
      • AIB³,⁴
    • Peer-to-peer lenders: Their terms are usually similar to banks, but they aim to provide funding more quickly. However, that generally comes at a higher cost. Examples include:
      • Linked Finance: Loans from €10,000 to €500,000 for up to five years, with rates from 6.95%-17.5%.⁵,⁶
      • Grid: Loans from €10,000 to €500,000 at around 7-12% interest.⁷
      • Flender: Loans from €10,000 to €300,000 for up to five years at around 7-16% interest.⁸
      • Santiago: Loans from €10,000 to €500,000. Interest rate and term length are unavailable on their website.⁹
  • Line of credit (LoC): A business line of credit works similarly to a business overdraft, providing a predetermined credit limit from which a company can draw as needed. Interest is paid only on the amount borrowed. In Ireland, the following providers offer LoC (also known as a Credit Line):
    • AIB: They only provide a credit line to their banking customers.¹⁰
    • Financefair: The only provider in Ireland offering a line of credit as a standalone product to businesses, meaning you don’t have to open a current account with us. We work with businesses that are incorporated limited companies, have a minimum annual turnover of €250,000, and have been trading for at least 1 year. LoC facilities advance you 20% of your annual turnover up to a limit of €250,000.

Here are the pros and cons of each option:

 

Provider Pros Cons
Business loan
  • It’s a well-known financial product, usually straightforward to understand.
  • Fixed cost and terms so you know what you’re paying and can plan your business finances accordingly.
  • A loan with a bank can take a while to set up and require a lot of admin.
  • Usually needs a personal guarantee, so your personal assets are at risk.
  • Can be restrictive. You usually have to have paid down at least 50% before you can get more funding. If you spread out your repayments, you’re locking out further funding for years.
Line of credit
  • You can draw down funds when needed.
  • More control over the funding solution.
  • Acts as a safety net, pay interest only on what you borrow.
  • Quick decision and access to funds with Financefair.
  • No personal guarantee needed with Financefair.
  • Fully online application process with Financefair.
  • 12-month facility, not a long-term commitment.
  • Only two providers in Ireland: AIB and Financefair (AIB only for their customers).

What is a line of credit and when does it make sense to use one?

A business line of credit is similar to an overdraft. In Ireland, you can choose  AIB’s Credit Line (if you’re their business customer) or Financefair’s Line of Credit. You can apply for both online. 

AIB don’t advertise their line of credit limit, but Financefair offers businesses up to €250,000. This gives you the working capital you need to get where you need to go. There are no concerns about running into the red, as the money is available to draw down when you need it. 

With a line of credit, you:

  • Have the money for one-off payments that you might otherwise be unable to afford. This might include: 
    • Significant seasonal expenses that only come around once or twice a year. 
    • Upcoming cashflow gaps where taking out a loan would be too cumbersome or long-winded.
    • Wages
    • Business events
    • A larger-than-average order of stock so that you can take advantage of bulk-buy discounts
    • Capital outlay
  • Have the freedom to work with other providers. With a traditional business overdraft loan, you can only get this facility from your business bank account provider. But with Financefair’s line of credit, you can have your bank account anywhere, and our line of credit facility won’t stop you from getting additional finance elsewhere.
  • Can normally draw down and pay back monthly or as a lump sum. When your line of credit has been open for 12 months, you can decide if you want to keep it open as a safety net for peace of mind or close it. You can also close it early, so you’re not locked into 12 months. 

How to get started with a Financefair line of credit

In Ireland, business line of credit facilities are only available from a select number of providers. There are currently two providers: AIB (if you have your business bank account with them) and Financefair.

It’s the quickest funding solution for us to set up, at Financefair we can have a line of credit up and running in two weeks. You can apply online, integrate your banking and accounting software with our platform and send us any documents online too. 

 Our line of credit facility has a number of other benefits: 

  • No other provider in Ireland currently offers a business line of credit as a standalone product. 
  • Our platform’s data analytics lets us stay up to date on the ongoing performance of your business, so there’s no need for you to regularly send us bank statements. 
  • We collect fees via GoCardless direct debit. This means we don’t need to contact your customers, and there’s no requirement for you to redirect payments to a Financefair bank account.
  • We don’t ask for a personal guarantee, so your home and personal assets won’t be at risk.

Here are the lending criteria for using Financefair LoC: 

  • Be an incorporated limited company.
  • Have been trading for at least one year.
  • Have a minimum annual turnover of €250,000.
  • Have some sort of debtor book (doesn’t have to be blue chip).
  • Primarily be operating as B2B.
  • Integrate your accounting and banking with our platform for ongoing management.
  • Fit our rating system. We check several metrics like your credit score, experience score and business performance.

How much funding could you get?

The funding calculator on our line of credit page shows some examples of the size of facility you could get, based on advancing 20% of your annual turnover:

Annual turnover including VAT Line of credit you could be approved for
€250,000 €50,000
€750,000 €150,000
€1,250,000 €250,000

Our pricing for a line of credit is as follows:

  1. A monthly fee of 0.6-0.75% 
  2. The platform joining fee 
  3. Minus any discounts applied 

Here’s how to get started:

  1. Apply: Complete a funding application form or contact us to arrange an appointment to speak to one of the team. 
  2. Connect: You’ll need to share a few documents, including your latest statutory financial statement (e.g. tax returns), business forecasts and tax clearance certificate, as well as connect your banking and accounting software.
  3. Offer: Within 24 hours, you’ll get an indicative offer.
  4. Onboard: If you accept the offer, our team will onboard you onto our platform.
  5. Formal offer: Once you’re credit approved, you’ll get a formal offer along with:

a. A DocuSign link with the debenture
b. A link to sign up to GoCardless so we can collect fees
c. Security documentation for AML and KYC

6. Funding: Once your facility is in place, your funding will be available within 24 hours.

We charge any fees via GoCardless direct debit during the first week of each month. 

Why fund your business with Financefair?

A team of finance and accounting experts in Ireland founded Financefair in 2015 under the original name InvoiceFair. 

Our aim is to give businesses the working capital solutions they need to grow faster. We offer several finance options to do this: invoice discounting, selective invoice finance, revenue based financing and line of credit

Here’s what it means when you choose a Financefair funding solution:

Get an indicative offer in one business day

It’s important for you to know if you can get funding – and how much you can get – as quickly as possible. That’s why we’ll give you an indicative offer within a business day. Then, when you’re set up on our platform and have completed all your documentation, your line of credit facility will be set up and ready to access within 24 hours.

Our team has decades of experience in financial services. This expertise, along with our seamless data analytics integration, allows us to evaluate, approve, and monitor risk quickly – meaning you can get a fast decision.

Access a line of credit, plus other financing solutions to help your business scale

When you get a line of credit with us, you’re getting a convenient, straightforward funding option you can use when needed. But you also have an entry point to our other business financing options, including revenue based financing and invoice financing. 

Because of the way we operate – by both talking to you about your business and goals, and backing this up with your accounts data – we can help you find the right funding solution to help your business grow. For example, if you sign up with us for a LoC, but it becomes clear that invoice financing might be a better option, we can suggest this to you. 

Here are some of the other advantages of working with us:

  • You can work with a local company that understands the Irish market.
  • You don’t need to give us a personal guarantee, so your personal assets aren’t at risk. Most business finance providers require a personal guarantee. 
  • You won’t face any hidden fees: You’ll know exactly what your line of credit will cost from the beginning.

How a solar panel company tendered for extra work with a Financefair line of credit

A company that installs solar panels on business premises made the most of a big opportunity with a Financefair business line of credit. They wanted to take advantage of a supplier discount by bulk buying solar panels, and they came to us with the idea to use invoice discounting to secure the €120,000 they needed. 

When we discussed their plans, it soon became clear that a line of credit would actually work better. We could offer them a €250,000 line of credit, allowing them to place the big order of stock and also have capital left over to tender for a new contract. 

This meant they could work on two contracts at once instead of one, boosting their brand and credibility in the process. And when the payment for the finished job came in, they could pay off the balance of their line of credit. 

Being able to buy a large amount of stock is just one example of how a line of credit can work well for a business. And in this case, not only was the business able to get a bulk order discount, but they were able to procure another large project and use the line of credit to fund two contracts instead of just one. 

Finance one-off business expenses with a line of credit from Financefair

In this article, we’ve taken a look at the options available if you’re looking for a business overdraft loan and why a line of credit might be a better option. 

If you need funding of up to €250,000 to cover a short-term cash flow gap, or to dip into once or twice a year to cover seasonal costs, a line of credit could be the right funding solution for your company.

Reach out to us to speak to a member of the team about how Financefair funding can help your business get where you want it to go. 

Sources

  1. https://www.ptsb.ie/business-banking/term-loans/ 
  2. https://businessbanking.bankofireland.com/credit/business-loans/business-loan/
  3. https://aib.ie/business/loans-and-finance/loans-up-to-60k
  4. https://aib.ie/business/loans-and-finance/loans-from-60001-300k
  5. https://www.linkedfinance.com/business-financing/
  6. https://www.linkedfinance.com/borrower-faqs/
  7. https://www.gridfinance.ie/short_term_loans
  8. https://flender.ie/business-loans
  9. https://santiagosme.ie/about/faq
  10. https://aib.ie/business/loans-and-finance/business-overdraft
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