An overdraft is useful until it becomes the way the business pays its bills.

• A limit set by the bank, used up to and repaid as the business needs
• Interest usually charged on the amount actually used, calculated daily
• Drawing power: the limit available can be linked to stock and customer dues
• Overdraft against a current account, cash credit against stock and receivables, short-term working-capital loans
• Review and renewal, usually every year

The sanction letter is the authority. This session explains how to read it, not what any bank's version says.

A made-up sanction letter is used for the reading practice. Participants then find the same six items in their own, if they brought it.

• The limit and the drawing power
• The interest rate, what it is linked to, and when it can change
• Security and guarantees
• Fees: processing, renewal, charges on unused limit, if any
• Conditions: statements, stock reports, minimum turnover through the account
• The bank's right to reduce, withhold or recall the limit

• A seasonal build-up of stock, followed by sales
• A large customer who pays in sixty days while wages are due in thirty
• A firm order that needs materials bought first
• Short, predictable dips that reverse within weeks
• The test: can you name the date on which the money comes back?

• The account never returns to zero, and the limit is always nearly full
• Short-term money spent on long-term things such as machinery or fit-out
• Using the limit to cover a loss, a tax bill or the owner's drawings
• Borrowing from one limit to pay interest on another
• Customers' delays growing while the limit quietly grows to match

None of these is a moral failing. They are common, and they are easier to spot in numbers than in feelings.

Use your own rate, taken from the sanction letter. The session does not quote rates, since they differ by lender, borrower and date.

• Average amount used in the month, times the interest rate in your sanction letter, times days divided by 365
• Adding fees and the taxes charged on them
• Comparing with the cost of the delay it is financing
• What an early-payment discount, offered to a customer, would cost by comparison
• Whether the same money could be released by collecting or stocking differently

• Statements and data a bank usually asks for, and why late submission hurts
• What a conversation about the limit looks like when you have a plan
• How the account's conduct across the year is read
• Declined or reduced limits: what the notice should say and what you can do
• RBI's directions on prepayment charges, which have specific provisions for cash credit and overdraft, for facilities sanctioned or renewed from 1 January 2026

• Find out what the borrowed money is actually financing
• Separate the long-term part and talk to the bank about a term loan on suitable repayment terms
• Raise cash from stock and collections, which the earlier sessions cover
• Stop using the limit for losses and fix the price or cost problem behind them
• Take professional advice, from a CA or a banker, before restructuring anything