1 The bank overdraft Short term loan Short term loan Only for working capital Only for working capital The Cash flow projection is used as basis to determine maximum required The Cash flow projection is used as basis to determine maximum required Coupled to cheque account, so you have control – not necessary to approach bank for withdrawals Coupled to cheque account, so you have control – not necessary to approach bank for withdrawals

2 The bank overdraft (cont.) Use only as much as you need Use only as much as you need Pay interest on: Pay interest on: –Amount used –For period used Therefore more economical then term loan Therefore more economical then term loan Must be revised annually Must be revised annually Can be called up (cancelled) with 24 hr notice > very risky Can be called up (cancelled) with 24 hr notice > very risky Penalty interest if you exceed max limit Penalty interest if you exceed max limit Not necessary to pay back in organised form. Not necessary to pay back in organised form. –Deposits reduces outstanding balance

3 The cheque account A cheque is a relatively cheap, safe and convenient pay instrument A cheque is a relatively cheap, safe and convenient pay instrument You pay You pay – a monthly service fee –A fee per cheque issued based on tariff per R100 with maximum A large variety of types of cheque accounts with different fee structures A large variety of types of cheque accounts with different fee structures

4 The cheque account (cont) Example of fee calculation: Monthly fee : R24 to R240 and more depending on type and use. Monthly fee : R24 to R240 and more depending on type and use. Cost per cheque: Cost per cheque: Amount of cheque = R250,00 Fee is 90c per R100 or part thereof with max. of R12,00 Fee is 90c per R100 or part thereof with max. of R12,00 Checque cost you 3 x 90c = R2.70

5 Other services attached to the cheque account Cheque can be crossed – no one else can cash it Cheque can be crossed – no one else can cash it Cheque can be guaranteed – beneficiary has assurance that cheque will be paid Cheque can be guaranteed – beneficiary has assurance that cheque will be paid Credit card / debit card Credit card / debit card Internet / telephone bankng Internet / telephone bankng Letters of credit (international trade) Letters of credit (international trade)

6 Short term loan Not longer than 12 months Not longer than 12 months A current liability A current liability Pay back periodically (e.g. monthly) Pay back periodically (e.g. monthly) Payment consists of Payment consists of –Capital redemption part –Interest Obliged to pay rgularly Obliged to pay rgularly

7 Long term loan Similar to short term loan except: Similar to short term loan except: –Period longer than 12 months (can be many years) Normally financial institution requires surety. Normally financial institution requires surety. –Surety is a guarantee (e.g. your house) Term loan to buy house is called a “BOND”. Must be registered in Deeds Office against title deed. Term loan to buy house is called a “BOND”. Must be registered in Deeds Office against title deed. –Title deed is document in which you are declared owner of the fixed property