This is a credit facility which allows the borrower to draw, within a specified tenor usually not exceeding 12 months, agreed amounts in excess of the credit balance in the current account with the bank
A credit facility usually provided to finance short-term shortages in cash/working capital needs typically not exceeding 12 months. It works by allowing the obligor draw funds over and beyond their credit balances but limited to a specified amount.
It is used to finance current assets or meet payments on expenses. An assessment of working capital needs is normally carried out.
Overdraft is susceptible to the same risk the business entity is subjected to i.e., inability to complete asset conversion cycle (ACC), business risk, industry risk, production, collection, macro-economic risk, demand, supply and diversion risks.
Overdraft Facility (ODF) vs. Temporary Overdraft Facility (TODF)
- ODF – Maximum tenor of 12 months
- TODF – Maximum tenor of 30-90 days
- Overdrawn current account by the obligor is permitted but not exceeding the approved limit
- Maximum tenor of 12 months
- Customer pays interest charge at the agreed interest rate
- The bank secures its position with adequate collateral
- In-built mechanism to achieve occasional swings
- Credit will be availed to customers who have satisfactorily maintained account with the bank for a period of 6 months.
- 3-year Audited Financials
- Company Profile
- Facility Request Letter
- Turnover covenant (minimum of 100% of facility amount per month)
- Provision of tangible security.
- Minimum of 6 months turnover analysis of the customer’s account(s) in Wema Bank and other banks.
- Maximum availment of 70% execution cost (subject to exceptions)
- Satisfactory credit check from two (2) Credit Bureaus