What is it called when a bank allows a business to withdraw more money than its balance?

What is it called when a bank allows a business to withdraw more money than its balance?

• A. Loans
• B. Overdraft
• C. Shares
• D. Trade Credit

Answer: (B)

An overdraft is a facility that lets a business spend more than its available cash by drawing on funds from the bank up to an agreed limit. It’s a flexible short-term form of credit used to smooth cash flow when payments are due before income arrives. The business pays interest on the overdrawn amount, and there may be additional fees for using the facility. It differs from a loan, which is a fixed sum borrowed upfront to be repaid over time with interest; from shares, which are equity sold to investors; and from trade credit, which is credit extended by suppliers to delay payment rather than a bank allowing negative balances.

An overdraft is a facility that lets a business spend more than its available cash by drawing on funds from the bank up to an agreed limit. It’s a flexible short-term form of credit used to smooth cash flow when payments are due before income arrives. The business pays interest on the overdrawn amount, and there may be additional fees for using the facility. It differs from a loan, which is a fixed sum borrowed upfront to be repaid over time with interest; from shares, which are equity sold to investors; and from trade credit, which is credit extended by suppliers to delay payment rather than a bank allowing negative balances.