Dropline Overdraft - Features, Advantages, Eligible Entities & Documents Required
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A dropline overdraft facility allows a borrower to overdraw funds from their current account up to a limit that the financial institution sets. An overdraft is an affordable form of borrowing since you only need to pay interest on the amount that you withdraw.
This withdrawal limit of the dropline overdraft facility eventually reduces every month from the original limit fixed by the lender. The interest that you need to pay is calculated on a daily basis, and you need to pay it at the end of the month.
For example, suppose you avail of a dropline overdraft of ₹1 Lakh with a tenure of 12 months. In this case, the overdraft limit will be reduced by 1,00,000/12, which equals ₹8,333.
Therefore, the overdraft limit available to you for the next month will be ₹91,667. Also, you can make full or partial repayments, as per your affordability and preference.
Features of Dropline Overdraft
The dropline overdraft facility comes with a number of features and benefits. Here are some of them:
Quick Fund Access
With the dropline overdraft facility, you enjoy quick access to funds up to a certain limit that is pre-sanctioned by the financial institution. This allows you to meet time-sensitive financial obligat Read Moreions of the business effectively Read Less
Secured and Unsecured Credit
Financial institutions provide dropline overdraft facilities in secured and unsecured forms
Repayment Tenure
Most financial institutions offer the flexibility to choose repayment tenures as per your convenience and affordability. The repayment tenure for this facility may be short, or it can go up to a few ye Read Morears Read Less
Here are some of the popular financial institutions that offer the dropline overdraft facility:
Aditya Birla Finance
AU Small Finance Bank
Axis Bank
Bajaj Finance
HDFC Bank
ICICI Bank
Kotak Mahindra Bank
SBI
Tata Capital
YES Bank
RBL Bank
Check out the documents that a business needs to submit to avail of the dropline overdraft facility:
Common Documents:
PAN card
Filled application form
Passport-sized photographs of applicants and co-applicants
Identity Proof: Aadhaar card, voter ID, driving licence, passport
Address Proof: Passport, voter ID, utility bills
For Self-Employed Individuals/Sole Proprietorships:
GST returns of the last year
Audited ITR of the last 3 year
Bank statements for the previous year
P&L statements and balance sheets for the last 3 years
Details of existing loans, if any
For Partnership Firms / Private Limited Companies:
GST returns of the last year
Details of existing loans, if any
Partnership Deed of partnership firms
Last 1 year’s bank statement of the borrower’s account
Certificate of Incorporation for Private Limited Companies
Reference of all T&C necessarily refers to the terms of the Partners as regards to pre-approved offers and loan processing time amongst other conditions.
FAQs on Dropline Overdraft
What are the types of dropline overdrafts?
A dropline overdraft facility is available in secured and unsecured forms. You need to provide collateral for a secured overdraft. Conversely, you do not need to provide collateral in case of unsecured overdraft.
When do I need to pay the interest for the dropline overdraft facility?
You need to pay the interest for the dropline overdraft facility at the end of the month.
What is the maximum amount that I can get through a dropline overdraft?
The financial institution decides the maximum limit you can get. It depends on various factors like the business type, the turnover, creditworthiness of the business, business vintage, etc.
Can self-employed individuals avail of the dropline overdraft facility?
Collateral requirements may differ based on the financial institution. Self-employed individuals are also eligible to apply for the dropline overdraft facility, provided they meet the relevant criteria. A strong credit score can improve the chances of approval.
