Businessmen is always short of funds. The profit goes mostly in drawings and reinvesting. For such shortage businessmen generally go for business loans. There are two types of loans – Fixed and Flexible.
In fixed loans the amount is disbursed by bank in one go and the loan expense start from the day of taking loan. The flexible loans like overdraft and cash credit accounts allow them to withdraw amount as much as required at a point of time. This will keep the interest cost low for the business.
Overdraft account – Overdraft account is a type of account in which the account holder can withdraw amount more than the amount lies in his account. Interest is calculated as per end of day balance of each day. So any surplus funds can be deposited and interest can be decreased. However the rate of interest for such loans is generally high than fixed loans generally by one or two percent.
The businessmen also can take a combination of both to further reduce the interest cost. The amount which businessmen seeks to invest in fixed assets like purchasing a plant and machinery can be taken as fixed loan while amount required for day to day working capital can be taken in form of overdraft or cash credit account.
Flexible loans is a very good option for persons with seasonal businesses and who receive fees at a certain part of year like CA.
Small Request: Dear Reader, hope you liked our content on Motivation. We want to keep our content free, engaging & effective to change lives. In order to survive and to create more content we need ‘Financial Help’. We value every single penny you pay us. Without your support we can't achieve our dream to turn 'Motivation into Utility'. Can you please help us using this link.