Phil McCabe, media and PR manager, Forum of Private Business
Business owners traditionally seek overdraft funding to ease immediate cash-flow worries. Loans tend to be used for longer-term investment. Many small businesses are more concerned with tightening the ship at present. However, even when business finance is available, it comes at a steep cost. In turn, it can cost more in interest to arrange a new overdraft or even an extension than it does to take out a loan. The best advice is that firms should explore a range of finance solutions appropriate to their businesses, from traditional lending and efficiency savings to invoice and asset-based finance.

Paul Mursell, managing director, Blue Printing Company
I think the two are actually very similar because the overdraft seems to be the same as a business loan these days. I don’t know anyone offering a business loan that isn’t secured against assets. I would say that the business loan is the better option though, because you get a set rate, whereas an overdraft rate can fluctuate. Of course, the overdraft also comes with the fear of it being pulled overnight. Once you have a loan, you have got the money, an overdraft you choose to dip into it if you need it and if they take that away from you it could lead to closure.

David Nestor, managing director, First4 Print Finishing
Where possible, we try and stay away from any form of borrowing, especially in the current climate. We don’t like to get carried away with spending. We have never had a business overdraft and I don’t think I would want one. We do invoice discount, but we have grown organically and we don’t go out buying kit left, right and centre. When we do buy kit, we like to use working capital and buy it outright, it is ours then and we don’t have to rely on a bank for it. I try very hard not to add to the little debt we already have.

Ken Harrison, managing director, F1 Colour
I think it depends what the borrowing is for. If it is for a particular purchase, then a loan is clearly cheaper and – with set payments budgeted for over a period of time – a more controlled debt. Whereas an overdraft is for the less planned need such as a period of cashflow problems. A loan feels like a permanent thing, even though it can be settled early in most cases, but an overdraft feels more flexible and short-term. However, while in most cases an overdraft may originally be taken out in the belief that it’s just to get the company through a brief period, in reality once one is in place it stays and gets renewed again and again at exorbitant fees.