How to fund your business with temporary overdraft (TOD) in Nigeria
Temporary Overdraft – If you think of funding your business with a faster and speedy facility, temporary overdraft will save you a lot of stress.
It comes with little or no documentation, you do not need a mountain of paper work to access this facility, it however depends on the premise of your ability as a performing customer with the bank.
Just before you get to ask too many questions on this topic, let me quickly run down and do justice to a mind boggling question you may be going through at this time.
What is Temporary Overdraft (TOD)
This simply refers to a short term facility you can access from the bank, with a maximum tenor of 30 days. This facility however is most suitable for corporate account owners with the bank in question.
This is as well a subset of Overdraft, which implies that qualified customers are given the benefit of overdrawing their account to the tune of the TOD limit.
Also do well to understand that this facility is suitable at funding working capital needs or requirements.
Note: Banks mostly prefer customers who deal with fast moving consumer goods for this facility.
Risk Acceptance criteria for Temporary Overdraft
As you are aware, for a bank to issue a facility, they have risk appetite and a number of objections as well standards you should meet to access any facility at a given time.
You may also like: Bank Overdraft: Understanding latest Dynamics and Principles
To access a temporary Overdraft, the following should be in place:
- You must have a satisfactory CBN CRMS check and positive private credit bureau checks. This is to ensure you’re not in any way owing any other bank or credit financing institution in Nigeria.
- You must not have returned cheques on your account in the last six months.
- The facility amount must not exceed 25% of immediate preceding 6 months average monthly credit turnover. This means to say, if you have 6 months credit turnover of say N24 million with average monthly turnover of N4 million, you are qualified for a TOD of N1 million.
- This can be availed to you if you already have other existing facility with the bank except overdraft. What this mean to say is, you cannot access overdraft without settling what you owe initially in overdraft, this is because TOD is not backed by collateral. You however can access TOD even if you are still owing the bank an existing loan order than TOD.
- The maximum facility amount usually may not exceed N5 million.
- This facility must be fully repaid the principal + the interest within 30 days and shall at no means be subject to renewal, extension or enhancement.
- You must have been in business for at least 24 months, evidenced by certificate of incorporation, business registration and statement of account.
- Your account must experience at least 6 months banking relationship with the bank, alongside a predictable and consistent cash flow pattern and identifiable sources.
|Single limit||Maximum of N5 million subject to 25% of average monthly credit turnover|
|Tenor||Maximum 30 days|
|Availability||The facility will be available once all the conditions precedent to drawdown have been met|
|Interest rate||MPR + 17% p.a subject to money market conditions|
|Management fee||1% flat payable upfront|
|Collateral||Personal Guarantee of two directors or principal promoters of the business|
Note: The above instance is subject to change at a given time, you however are advised to visit your bank and run possible negotiation.
Documentation for temporary Overdraft
- Your formal letter of request
- Clean Credit Risk Management System (CRMS) and other credit bureau reports.
- Affirmative domiciliation covenant of the sales proceed signed by you
- Personal Guarantee of the Directors/ Proprietor/Principal promoter with a notarized statement of net worth.
FAQ on Temporary Overdraft
1)Temporary overdraft (TOD) in banking India
TOD in India is not different from what is obtainable in other countries of the world, the rate could change depending on money market conditions.
Different economies had streamline their TOD for same purpose, requirements and risk appetites could however differ relatively.
TOD rate in India p.a basis could go for as far as 18% on certain conditions and below retrogressively.
2) Temporary Overdraft (TOD) Westpac
Drawing from a highlight by Westpac, TOD is an extra cash for the short term. It lets you access extra funds through your bank account for up to 45 days, helps cover short term financial shortfalls.
This is however an unsecured loan that forms part of your everyday Westpac choice bank account.
- TOD is from $250 to $50,000
- Only pay interest on funds used (when fees and charges are paid on time)
- Being linked to your Westpac choice account, which enables you multiple ways to access funds even with a Westpac debit card
- TOD interest rate- 14.09% p.a variable
- No security is required
- $0 service fee when you spend within agreed temporary overdraft limit
- Refinancing debt
- For any business purpose.
This is suggested and highlighted by Westpac.
3) Temporary Overdraft request letter to the bank
There’s no rocket science attached to drafting a letter your bank communicating your intention to access its overdraft as a loyal customer, you may however adhere to the below sample letter for your onward insight.
15th Oct, 2019
The Manager Polaris Bank Ltd,
Kindly use this as an instruction to process a TOD of N2 million being on my request in favor of Donatec company ltd.
This is to enable me surmount a short term financial pitfalls in business.
Ac number: 176222xxxx.
Yours in business
You sign your signature here
From the letter above, you should understand that your own address appears at the top right corner of the paper. While you address to the bank manager at the left corner as seen.
Every detail used here is strictly an example you are expected to draft your own letter from. It’s as simple as that.
4) TOD interest rate in Nigeria
This could fall somewhere from 17% to 18% or below depending on money market conditions.
Have questions, kindly use the comment box below.
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