Many medical professionals have an idea about what an overdraft facility is, but aren’t really sure of why and how to use themOverdraft facilities offer an incredibly flexible solution for all kinds of overheads that come with owning or running a practice. In this article, we highlight some of the key benefits an overdraft can present and some situations where they may be just the right tool for you. 

So, how does an overdraft work? 

An overdraft is a borrowing facility linked to a bank account which has an approved credit limit. It can be drawn on at any time and is most useful for day-to-day expenses. The limit can be designed to fit your cash flow requirement at the time, and you don’t need to use the full amount. You only pay interest on the limit you have drawn down, if no amount is drawn you pay no interest!  

Benefits for you 

So now you know how an overdraft facility works, you might be wondering what some of the key benefits are 

  1. They are very flexible and easy to setup 
  1. You can get access to the funds at any point in time  
  1. You can pay off any outstanding funds whenever you are able  

At Credabl, we don’t charge ongoing fees and have no requirements for security, therefore if you owe nothing on the account, you will have no costs.  

Due to the flexibility of the overdraft they do attract a slightly higher interest rate. However, if you fully utilise the funds and plan on paying those funds back into the account quickly then the total cost of the exercise will be minimal.  

Additionally, overdrafts can help you to manage your practice’s cashflow strategically and without stressfully tight budgeting processes. However, keep in mind that overdrafts should not be seen as a replacement for longer term loans. 

When should I use one? 

Generally, overdrafts should be used to cover short term expenses and consumables that might not be covered by a longer, fixed term loan 

An example of this might be a dentist using an overdraft to cover the cost of consumables they will use over the next 2-3 months. Instead of borrowing $15,000 they could use the overdraft facility to cover this amount and pay it off in 2 months. The cost to do this would be less than setting up a 12 month fixed loan, but still allows you to acquire the goods needed to effectively run your practice.   

The COVID-19 pandemic offers an example of another scenario where overdrafts have been useful solution for many practicesDuring the pandemic, many practices faced short term cash flow shortages due to the timing of JobKeeper payments and restrictions on admitting patients. In this scenario overdrafts were a great way to cover any cash shortfalls and avoid closure. 

 

All in all, overdrafts are an extremely versatile and useful loan structure for many practices but it’s important to consider your own personal circumstances. They offer a relatively simple and quick way to cover costs that might otherwise slow down your operations or lead to difficult budgeting decisions.  

If you think that an overdraft would be right for you can apply here, or if you simply want some advice on what structure might work for your practice call us on 1300 CREDABL (1300 27 33 22) 

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