Dropline Overdraft -Features & Who Can Avail

Retailers, traders and manufacturers are always in need of funds for the smooth operation of their business. Hence, banks and NBFCs offer various financial instruments that provide a line of credit to them for their business expenses.

Features like an overdraft facility allows a borrower to overdraw funds from their account, up to a certain limit. However, there is also something known as a Dropline Overdraft facility, which is similar to Overdraft with a few key differences. Let us understand what a Dropline Overdraft is, it’s features and who can avail it.

With a Dropline Overdraft, a borrower can overdraw funds from their current account up to a certain limit, but at the same time the actual withdrawal limit of the overdraft reduces every month from the sanctioned limit.Thus, a borrower can withdraw more funds than those actually present in their account, up to a certain limit. But the maximum overdraft limit sanctioned will reduce every month. The interest is applicable only on the borrowed amount and not on the entire overdraft limit. Funds can be deposited anytime back into the account to reduce the outstanding balance.Let us understand this with an example.If you opt for a dropline overdraft facility with a tenure of 60 months and a total overdraft limit of Rs 10 lakh, then after the first month, the overdraft limit will reduce by 10,00000/60, which is Rs. 16,666. Hence the overdraft limit available to you for the next month will be Rs. 9,83,334. This reduction will continue for the next month until the last month of repayment. This is basic working of a dropline overdraft facility.

• The predominant feature of a dropline overdraft is that the withdrawal limit reduces from the sanctioned limit every month.
• A dropline overdraft can be availed both as a secured or an unsecured loan.
• In case of unsecured dropline overdraft, no collateral has to be submitted.
• A dropline overdraft is usually favoured by retailers, traders and manufacturers.
• The interest rate is calculated on a daily basis but charged on a monthly basis.
• Dropline overdraft is credited only to current accounts.
• Overdraft limit can go upto Rs. 15 crore. However, the actual maximum limit is eventually decided by the bank.
• The Dropline OVerdraft tenure can be anywhere between 1 to 15 years, depending on the bank.
• A one-time processing fee discharged when you avail a dropline overdraft.
• Dropline overdraft is basically a combination of an overdraft and a term loan.
• It can be availed on a monthly, quarterly or yearly basis.
• Banks do not levy a yearly renewal charge for a dropline overdraft.

Entrepreneurs, self-employed professionals, partnership firms, private limited companies, sole proprietorship and others can avail a dropline overdraft facility to get a lien of credit that can allow them to smoothly run their operations.

General Documents:

• Duly filled application form
• Passport-sized photographs of all the applicants and co-applicants
• PAN Card
• Identity Proof – Aadhar Card, Passport, Voter ID, Driving License
• Address Proof – Passport, Voter ID, Utility Bills

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 3 years’ financials, such as Profit -Loss statement and balance sheet

Partnership Firms / Private Limited Companies

• Payment Statement of existing loan(s), if any
• Partnership Deed in case of partnership firms
• Previous year’s GST returns
• Previous year’s bank statement from borrower’s account mentioned in balance sheet
• Certificate of Incorporation for Private Limited Companies