Dropline Overdraft

The key features of drop line OD are mentioned below:

• The withdrawal limit reduces every month from the initially sanctioned limit.
• Dropline overdrafts come in the form of secured and unsecured loans.
• Borrower is not required to submit collateral in case of an unsecured dropline overdraft facility.
• Borrowing limit can go up to Rs. 25 crores, depending on the borrower’s eligibility, lender’s policy and their sole discretion.
• The borrowed amount is credited only to the current account of the borrower and can be used on a monthly, quarterly, half-yearly or yearly basis.
• Dropline overdraft interest rate is calculated daily but charged every month.
• The dropline limit is usually assigned for 1 to 15 years, varying from bank to bank.
• A one-time processing fee is charged, and no yearly renewal charges are levied.
• It is a mix of a term loan and an overdraft facility.
• This facility is mostly availed by manufacturers, retailers and traders.

The following are the key benefits of the drop line overdraft facility:

• It is more flexible than a term loan because the borrower only borrows what they need, making it less expensive.
• Unlike term loans, there are no monthly repayments for a dropline overdraft facility.
• The interest is charged only on the amount used from the facility.
• In most cases, no penalty is levied for paying off an overdraft earlier than intended.
• Can be operationalised monthly, quarterly, semi-annually, or even annually.
• It is a fusion of term loans and overdrafts.
• No yearly renewal charges are levied.

Below is the list of popular Banks/ Non-Banking Financial Companies (NBFCs) that offer drop line overdraft facility:

• Axis Bank
• Aditya Birla Finance
• Bajaj Finserv
• ICICI bank
• HDFC Bank
• Kotak Mahindra Bank
• SBI
• Yes Bank
• Tata Capital
• Federal Bank
• Utkarsh Small Finance Bank

• Dropline overdraft caters to the working capital needs of some borrowers. An overdraft could be for general business purposes.
• The interest on the dropline overdraft is charged on the amount used. The interest on a traditional overdraft is charged on the entire overdraft amount.
• Dropline overdraft only requires a fixed one-time processing fee. An overdraft requires a yearly renewal charge for the overdraft.
• The credit limit for overdraft is fixed, whereas the credit limit for dropline overdraft reduces gradually.
• Repayment of overdraft is ideally on the bank’s demand; however, the same gets annually renewed without any on-demand repayment. For dropline, the repayment can be done monthly, quarterly, half-yearly or yearly.
• Overdraft usually comes with a tenure of up to 12 months, whereas a dropline is offered for a longer period of 1 to 15 years.
• Overdraft requires irregular monitoring by the bank, whereas monitoring fothe r dropline is partially done.

• Entrepreneurs, private limited companies, partnership firms, self-employed professionals, sole proprietorships, and other entities are eligible to avail of a dropline overdraft facility.
• Dropline overdraft is available to businesses or professionals with a good source of income and a solid credit history.
• Most lenders require the business to be operational for at least 2 years.
• Age limit varies by bank and the type of overdraft (secured/ unsecured), but generally, applicants should be in the age group of 21 and 65 years. 
• Common documents required for dropline overdraft include KYC documents, business registration proof ( GST registration, business license, etc.), financial statements (income tax return, audited financials), and bank statements.
• Collateral may be required for secured dropline overdrafts, in the form of property, fixed deposits, or other financial assets.