Explain five disadvantages of using a bank overdraft as a source of finance.

Answer:

-it is expensive source of finance as the interest charges are very high
-Frequent use of overdraft could be a sign of poor management hence it makes it difficult to obtain credit.
-Overdrafts are not easily available unless one is well known
-Interest repayment cannot be planned for with certainty
-Overdrafts are only given to current account holders only
-Repayment patterns are unplanned hence any deposits made in the account may be assumed to be repaying the overdraft
-Short term repayment period which may affect the cash flow of a firm adversely

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