The application process is usually conducted online, and the lender is likely to use an automated decision-making process. Indeed, if you are lucky, the approval process will only take a matter of hours, and you can then draw down the funds immediately. Paying unexpected bills or meeting the costs associated with business emergenciesįunding business expansion or development of new products and servicesĭrawdowns can be approved by the finance provider very swiftly – certainly faster than for many other types of business loans. Paying salaries or other essential expenses in the short-term, while the business recovers from a difficult period However, with banks becoming increasingly reluctant to grant overdrafts to smaller businesses, many businesses have started looking to drawdown facilities from specialist providers instead.īusinesses might use the funds from a drawdown for many different things, such as: In some ways, a drawdown facility works in a similar way to an overdraft, indeed an overdraft is another form of revolving credit. This allows for easy budgeting, as you won’t suddenly be hit with an unexpectedly high repayment demand. Interest rates for drawdown are usually fixed. It also means that, while the headline interest rate on your drawdown arrangement is almost certain to be higher than for a traditional term business loan, you might still end up repaying less interest overall. No one likes being in more debt than strictly necessary, so you can simply borrow the amount you need at any one time, and no more.Īs you only borrow what you need, this means that you won’t be making unnecessary interest repayments. These arrangements are totally flexible, so if you only need to access your drawdown facility once or twice, then that’s no problem.Ī business’s needs change over time. However, if you decide you don’t need to borrow any additional amounts, then that’s fine. For example, if your drawdown facility has a limit of £5,000, you might borrow £1,000 initially, but you can still return and borrow a further £2,000 three months later, or £3,000 six months later – indeed you can access any amount up to your drawdown limit, all without needing to arrange a new credit facility. In a nutshell, you borrow what you need, when you need it. The flexibility of drawdown arrangements is perhaps their most attractive feature. Then, when you’ve repaid the original borrowing, you might start thinking about whether you need to access any more funds. The daily interest rate might be somewhere between 0.05% and 0.1%. After making a withdrawal, you might then repay the amount borrowed, plus interest, over several months. This means that it’s effectively a form of ‘revolving credit’ arrangement.Ī drawdown agreement might typically have a term of 12 or 24 months. However, instead of receiving the loan amount as a single lump sum at the start of the agreement, it allows you to borrow differing amounts at different times throughout the term of the agreement. ![]() Simply speaking, a drawdown facility is a type of business loan.
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