Explain one disadvantage of using on overdraft as a source of finance for a small business? Provide 2 alternative sources of finance

Although the use of an overdraft can solve short term cash-flow issues it is likely to come with a high interest rate. It is possible/likely that this will cause further financial difficulty.
There are a wide variety of alternative financial opportunities available to a small business which should be considered before the use of an overdraft facility. Personal investment either through one's own savings or that of a relatives can prove to investors that you have a long-term commitment and you are ready to take risks. The first money which is invested into a business start up is likely to come from this source. Bank loans are one of the most common funding sources for a small to medium size business. In the case of a limited company the bank is taking the risk so it is important that the business has a sound business plan, excellent track record and a very good credit score. The use of an overdraft is also likely to have a negative impact on a companies credit score.