Overdraft for businesses - how it works and alternatives

What is an overdraft?

A cash credit is a flexible credit line that allows a business to access funds temporarily when there is not enough money in its business account.

A credit limit is usually agreed in advance. The business can draw funds within that limit when needed and repay them as cash flow improves.

Cash credit is mainly used for short-term liquidity needs, for example when expenses arise before incoming payments.

What is a line of credit used for?

It can be used for:

• Temporary cash-flow gaps
• Purchasing stock
• Paying salaries or suppliers
• Seasonal expenses
• Pre-financing a large order
• Unexpected business costs

For larger or more planned expenses, a business loan may be another option.

How does cash credit work?

With a traditional cash credit facility, the business and the bank or lender agree a maximum amount that can be used.

The business can then draw and repay funds within this credit limit.

Terms vary by provider and may depend on the credit limit, interest rate, fees, term, the financial position of the business and any collateral requirements.

Overdraft interest and costs

The cost of cash credit varies between providers. It often includes interest on the amount used and may also include additional credit or administration fees.

Always compare the total cost, not only the headline interest rate.

For more information about business financing costs, see business loan interest rates.

Calculating the cost of a line of credit

To estimate the cost, you need to consider how much of the credit line you actually use, how long you use it for, the interest rate and any additional fees.

For a business loan, you can also use the business loan calculator.

Cash credit or business loan?

Cash credit and business loans can sometimes be used for similar needs, but they work differently.

Overdraft facility

• Revolving credit line
• Draw funds up to an agreed limit
• Mainly suited to temporary liquidity needs
• Costs often depend on the amount used

Business loan

• Fixed amount agreed in advance
• Defined repayment structure
• Can be used for temporary needs or larger investments
• Costs are set out in the offer

Qred does not offer a traditional cash credit facility. A Qred business loan can, however, be an alternative if the company needs a fixed amount for working capital, unexpected costs or an investment.

Qred can offer business loans up to €500,000 with fixed monthly fees and the option to repay early without extra fees.

When can a business loan be an alternative?

A business loan can be relevant when you need a defined amount, want to know the cost in advance, do not need a revolving credit line, or want financing for working capital or an investment.

For planned investments, see investment credit.

Overdraft or business credit?

The terms are sometimes used interchangeably, but they do not always mean the same thing.

Cash credit is usually a specific form of flexible credit for short-term liquidity needs.

Business credit is a broader term that can refer to different types of financing for companies.

Read more about business credit.

When can cash credit be useful?

Cash credit can be useful when a company’s expenses and income do not occur at the same time.

For example, a retailer may need to buy stock before the sales season starts, or a company may need to pay suppliers before a major invoice is paid.

Cash credit for self-employed businesses

Self-employed businesses can also experience temporary liquidity needs. A cash credit facility may be one option, depending on the terms offered by the bank or lender.

If the required amount is known in advance, a business loan may also be suitable.

Advantages of cash credit

• Flexible access to liquidity
• Funds available when needed
• Suitable for temporary shortfalls
• Credit availability can increase again after repayment

Points to consider

• Interest rates and fees can vary
• Collateral may be required
• A temporary credit line can become a long-term solution to a structural issue
• Total costs can be harder to predict in advance

An alternative to cash credit with Qred

Qred does not offer a traditional cash credit or current-account credit facility.

A Qred business loan can still be used for many similar needs, such as temporary cash-flow gaps, stock purchases, unexpected costs or additional working capital.

1. Apply for financing

Enter the amount your business needs.

2. Qred assesses your business

Each application is assessed individually based on the financial situation of the company.

3. Review the offer

You receive the applicable terms and fixed monthly fees.

4. Use the financing for your business

The loan can be used for working capital, stock, unexpected expenses or investments.

Frequently asked questions about overdraft

What is an overdraft?

Overdraft is a credit line that allows a business to access funds temporarily up to an agreed limit.

How much does cash credit cost?

The cost varies by provider and may include interest on the amount used plus additional fees.

What is the interest rate on cash credit?

The rate depends on the lender, the business, the credit limit and any collateral requirements.

Can self-employed businesses apply for cash credit?

Yes, several Belgian banks offer this type of credit to self-employed businesses and companies, subject to their own criteria.

What is the difference between cash credit and business credit?

Cash credit is a specific flexible credit facility, while business credit is a broader term covering different types of business financing.

Does Qred offer cash credit?

No. Qred offers business loans that can be used for some similar needs, such as temporary liquidity, working capital or unexpected business expenses.