In a dropline overdraft, the authorized withdrawal cap reduces monthly, whereas in a traditional overdraft facility, the withdrawal limit remains constant during the loan tenure.
Dropline Overdraft: Meaning, Example & Documents Required
What is Dropline Overdraft (DLOD)?
Dropline Overdraft refers to a facility provided by financial institutions such as banks or NBFCs to customers where businesses can overdraw a predetermined amount from their current account. Under this facility, borrowers can only withdraw a certain amount agreed upon by the banker. Borrowers generally prefer the Overdraft Facility over other forms of borrowing as interest is charged only on the amount of money that is withdrawn.
Except for the restriction on the amount that can be withdrawn, a Dropline Overdraft is almost the same as an Overdraft Facility. This withdrawal limit gets reduced every month from the sanctioned limit. However, the interest rate is calculated daily and is charged at the end of each month.
Dropline Overdraft facilities can be availed by self-employed professionals, private limited companies, entrepreneurs, partnership firms, sole proprietorships, and others. Borrowers can deposit money anytime to reduce the outstanding balance.
Also Read: Understand Business Loan
Understand the Dropline Overdraft facility with an Example:
If the tenure of the overdraft facility is 50 months initially and the initial overdraft limit allowed is Rs. 20 lakh, after one month the operating limit will automatically be reduced by Rs. 40,000 (20,00,000 / 50). This suggests that the operating limit available at the end of the first month will be Rs. 19,60,000 (20,00,000 – 40,000). This calculation will proceed each month until the final month of the repayment tenure.
Related Article: What is Overdraft Facility?
Features of Dropline Overdraft
- Monthly Reduction: The withdrawal limit reduces monthly from the original sanctioned limit.
- Secured and Unsecured: Available as both secured and unsecured loans.
- No Collateral Required: Unsecured Dropline Overdraft facilities do not require collateral.
- Interest Calculation: Interest is charged monthly but calculated daily.
- High Borrowing Limit: The borrowing limit can go up to Rs. 15 crores, depending on the bank’s discretion.
- Account Type: Only credited to current accounts.
- Flexible Terms: Can be used on a monthly, quarterly, half-yearly, or yearly basis.
- Long Tenure: Typically assigned for 1 – 15 years, though it may vary by bank.
- Processing Fee: A one-time processing fee is levied.
- No Renewal Charge: Zero yearly renewal charge.
- Combination Loan: It is a combination of a term loan and an overdraft facility.
- Popular Among: Mostly opted by manufacturers, retailers, and traders.
Popular Banks/NBFCs Offering Dropline Overdraft Facility (DLOD):
- Aditya Birla Finance
- Axis Bank
- Bajaj Finserv
- HDFC Bank
- ICICI Bank
- Kotak Mahindra Bank
- Tata Capital
Also Read: Difference Between Term Loan Vs Overdraft Facility
Documents Required for the DLOD Facility
1. General Documents Required
- KYC Documents of borrower and co-applicants
- Aadhar Card
- PAN Card
- Duly filled application form
- Passport-sized photographs of all applicants and co-applicants.
2. For Self-Employed Individuals / Sole Proprietorship
- Last year’s GST returns
- Last 3 years ITR (audited)
- Last 1 year’s bank statement
- Status of existing loan(s), if any
- Last three years’ financials, including balance sheet and Profit-Loss Statement.
3. For Partnership Firms or Private Limited Companies
- Payment Statement of existing loan(s), if any
- Partnership Deed in case of partnership firms
- Last 3 years Financials (audited)
- Last 3 years ITR
- Last year’s bank statement from the borrower’s account mentioned in the balance sheet
- Certificate of Incorporation for Private Limited Companies.
Advantages of Dropline Overdraft
- Flexibility: More flexible than other types of loans, allowing you to borrow as needed for your business needs.
- No Monthly Repayments: No need to make monthly repayments.
- Interest on Usage: Interest is only charged on the amount used.
- No Early Repayment Penalty: Generally, no penalty for paying off an overdraft sooner than intended.
- Combination Loan: A mix of term loans and overdraft facilities.
Why Choose OneNDF for Your Financial Needs?
OneNDF, a leading online loan marketplace in India, brings over a decade of experience in providing tailored financial solutions for MSMEs. Here’s why OneNDF stands out:
- Expert Guidance: Navigating through overdraft facilities and understanding eligibility criteria.
- Personalized Solutions: Addressing individual MSME needs and creating tailored financial plans.
- Comprehensive Support: Offering assistance from application to fund disbursal.
- Customer Support: Available online and at the New Delhi head office for any queries or concerns.
By leveraging OneNDF’s extensive expertise and support, MSMEs can secure their financial future and streamline their operations with confidence and ease.
FAQs
Q.1 Is it useful to have a good credit score for availing Dropline Overdraft facility?
Yes, a good credit score increases your chances of getting your dropline overdraft facility approved by your bank.
Q.2 Is it necessary to submit collateral before taking the Dropline Overdraft facility?
It depends. Dropline overdraft is available both as a secured and unsecured loan. If you apply for a secured dropline overdraft facility, you will need to furnish collateral.
Q.3 What is the maximum borrowing limit for the dropline facility?
The maximum limit is determined by the lender based on the borrower’s profile, creditworthiness, business needs, financial history, and repayment capability.
Q.4 How is the interest rate charged on the borrowed amount in a Dropline Overdraft facility?
The interest is calculated daily and charged on a monthly basis.
Q.5 What is the difference between a Dropline Overdraft and an overdraft facility?
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