Our new calculator reveals the true costs of a business overdraft, and shows the level of potential savings

Today we are launching a new tool that will be useful to business owners and managers who use bank overdraft facilities.

The costs of any overdraft facility appear as charges on you bank statement, usually detailed at the end of the month.

But for many people, it remains a mystery as to how those costs are calculated, and that makes it hard to verify that you are getting a competitive deal.

Our new tool not only reveals how much you are paying, but goes further and suggests whether you could save money, and how much.

For many years we have had basic rate data on our site on base rates, and facility fees.

Now you have a way to make sense of that by adding your own information.

You can find the actual overdraft rate your bank charges on your bank statement. It is usually on the last page. Now that most banks only supply statement electronically, you will need to look online for those pages if they don't come in the mail.

With that rate, you are then in a position to use our new tool, which you can find here.

Many users may be surprised at how high the effective interest rate is that they are paying.

Shopping around is the key. And the critical point to negotiate with any bank is the 'margin' for 'risk'. That will depend very much on how your bank views your business and the information (including financial statements) you have supplied them.

There are more details on how the overall overdraft costs are calculated here.

Overdraft facilities are just one way to fund working capital needs.

Other options may be more cost effective.

Terry Haydon from Cashflow Funding offers one of those options, and our tool incorporates their rates to give an initial indication of savings, if any.

"We are targeting those genuine Kiwi businesses that have business-to-business annual turnover in the $100,000 to $3 million revenues that are basically the backbone of the New Zealand economy," he said.

"The current assets are the surety we look for and it is our experience in the sector that gives us the confidence to provide a credit line based on those assets. Our [processes] also ensure that we are at the head of the queue should something go drastically wrong with the [clients] business."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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OMG - How much did CFF pay you for this marketing tool?
All the calculator does is work out the effective interest rate on your average balance (which by the way is not straight forward to work out) by including the overdraft facility fee.
The "calculator" then asks you for more information like your annual turnover etc, that has nothing to do with the calculation. Then asks you to send that info through to CFF. Ha.
Why is knowing the margin so important? You don't walk into Mitre 10 and ask them what their margin is on a hammer - you just compare the total price to others in the market.

I am quite happy to fund any booming business overdraft at a mere 15%. For example.
Any takers??
In all seriousness, are businesses more at risk than houses at 5-7%, or have houses become our biggest business. TBTF.