An overdraft limit is a loan amount sanctioned by the bank to the borrower to meet his business necessities. An OD facility allows you to withdraw money or issue cheque up to the approved OD limit, even if there is no balance in the account. It’s a short term credit facility commonly for 12 month, which is renewable after every 12 months.
The overdraft limit or OD limit is the maximum amount that you can overdraw from bank. Borrower has to pay interest on utilized amount only. Interest is calculated on daily overdrawn balance and debited to the OD account monthly. Whatever amount you repay into the overdraft account, you can withdraw it again as long as the limit is not over utilized.
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What are the documents required for overdraft facility or OD limit?
Documents required for overdraft facility or OD limit depends upon the type of business of the borrower.
Documents required for different types of business are as follows:
- Pan Card
- Aadhar Card
- Voter ID Card
- Passport
- Latest Month Electricity Bill
- Copy of VAT/ Sales Tax, GST, Import-Export or any other registration Certificate
- Latest Office Address proof i.e., electricity bill, rent agreement etc.
- Company Profile on the Letterhead of the firm
- Latest 3 year ITR with computation of Income including P & L a/c, balance sheet with their schedule and annexures duly certified by CA
- Form No. 3 CA & 3 CD in case of audited balance sheet
- Latest 2 years VAT/ Sales Tax/ GST return
- Latest 2 year form 26AS if applicable
- One year up to date all the saving and current account statement
- Copy of Sanction Letter
- Up to date loan account statement
- Loan repayment schedule
- 12 Month up to date bank statement showing repayment of the loan
- Loan closure proof if loan is closed
- Copy of previous chain of property papers
- Copy of approved sanction plan or Map
- Pan Card
- Aadhar Card
- Voter ID Card
- Passport
- Latest Month Electricity Bill
- Copy of Rent Agreement/ Registered Lease Deed
- Latest 3 year ITR with computation of Income
- Latest 2 year form-16 with 26AS if applicable
- One year up to date salary account statement
- Copy of Sanction Letter
- Up to date loan account statement
- Loan repayment schedule
- 12 Month up to date bank statement showing repayment of the loan
- Loan closure proof if loan is closed
- Copy of previous chain of property papers
- Copy of approved sanction plan or Map.
- Pan Card
- Copy of VAT/ Sales Tax, GST, Import-Export Certificate or any other registration certificate
- Copy of Partnership Deed
- Latest office address proof i.e., electricity bill, rent agreement etc.
- Company Profile on the Letterhead of the Company
- Latest 3 year ITR with computation of Income including P & L a/c, balance sheet with their schedule and annexures duly certified by CA
- Form No. 3 CA & 3 CD in case of audited balance sheet
- Latest 2 years VAT/ Sales Tax/ GST return
- Latest 2 year form 26AS if applicable
- One year up to date all the current account statement
- Copy of Sanction Letter
- Up to date loan account statement
- Loan repayment schedule
- 12 Month up to date bank statement showing repayment of the loan
- Loan closure proof if loan is closed
- Pan Card
- Aadhar Card
- Voter ID Card
- Passport
- Latest Month Electricity Bill
- Copy of Rent Agreement/ Registered Lease Deed
- Latest 3 year ITR with computation of Income
- Latest 2 year form-16 with 26AS if applicable
- One year up to date salary account statement
- Copy of Sanction Letter
- Up to date loan account statement
- Loan repayment schedule
- 12 Month up to date bank statement showing repayment of the loan
- Loan closure proof if loan is closed
- Copy of previous chain of property papers
- Copy of approved sanction plan or Map.
- Pan Card
- MOA & AOA
- Copy of VAT/ Sales Tax, GST, Import-Export Certificate or any other registration certificate
- Latest office address proof i.e., electricity bill, rent agreement etc.
- Company Profile on the Letterhead of the Company
- List of director & shareholder with their shareholding pattern duly certified by CA.
- Latest form-32
- Latest 3 year ITR with computation of Income including P & L a/c, balance sheet with their schedule and annexures duly certified by CA
- Form No. 3 CA & 3 CD in case of audited balance sheet
- Latest 2 years VAT/ Sales Tax/ GST return
- Latest 2 year form 26AS if applicable
- One year up to date all the current account statement
- Copy of Sanction Letter
- Up to date loan account statement
- Loan repayment schedule
- 12 Month up to date bank statement showing repayment of the loan
- Loan closure proof if loan is closed
What are the other key factors to be considered before choosing best overdraft facility or OD limit?
Check your OD limit eligibility that how much OD limit loan you can borrow from bank based on your income eligibility and market value of the property. All the banks have different policy to calculate the loan eligibility. Loan eligibility of a borrower also depends upon so many other factors like age, income, cibil score, work profile, financial stability, market value of the property etc.
Before taking overdraft facility, check rate of interest offered by different bank or financial institutions. If rate of interest is high then interest is also high, so choose the bank which provides lower rate of interest so that OD limit interest will not put extra loads on your business.
Bank charges loan processing fees to process your overdraft facility or OD limit application. There are two types of charges one is loan processing fees and the other is loan administration charge.
Loan processing fee charged by the bank or financial institutions to process your loan application, valuation of the property, legal verification of the property, residence verification, office verification, due-diligence of income documents and bank statement etc. It could be a fixed percentage of your loan amount or a fixed amount.
Loan administration charges are taken by bank or financial institutions to maintain your OD account after disbursement. Some bank or financial institutions took upfront fees however some of them charged after sanction of the loan amount. So check OD limit processing charges of bank or financial institutions deeply before applying for the loan.
When borrower decided to close his overdraft facility or OD limit before the completion of loan tenure or period. Bank or financial institutions may levy 1% to 5% foreclosure charges on overdraft facility loan amount.
Bank or financial institutions laid down several conditions related to balance transfer of overdraft facility or OD limit to another lender, cheque bouncing charges, late payment charges, interest on late payment etc. It is advisable to read all the terms and conditions before choosing the best bank.
As there is no EMI so there is no repayment, if limit is used within the overdraft limit. But overdraft facility or OD limit is repayable on demand by the bank at any time.
As there is not any fixed EMI, so there is no minimum monthly payment required for OD facility subject to limit utilized within the overdraft limit. But if OD limit account goes into excess, you have to repay excess amount immediately. If the excess amount is not repaid immediately, bank may stop the overdraft facility and you have to pay full outstanding amount in a specified time. If bank or NBFC recalls your overdraft facility or OD limit then it may affect your credit rating or cibil score adversely.
When overdraft facility over utilized by the borrower and bank or NBFC approves the overdrawn limit, then the interest charged on the excess amount is higher than the agreed OD limit rate of interest. This higher rate of interest is called penalty interest rate or charges.