What phenomenon can lead to an overdraft situation for a business?

An overdraft situation occurs when a business spends more money than it has available in its checking account, leading to a negative balance. Excessive loan repayments can contribute to this financial phenomenon because they can significantly reduce the cash available to a business. When a company commits a large portion of its income to repay loans, it may not have sufficient funds left for day-to-day operations or other financial obligations. As a result, the depletion of cash flow can lead to an overdraft if expenses exceed the available balance.

The other options, while they are important considerations in business finance, do not lead to overdrafts. Increased revenue generation typically enhances cash flow, lower operational costs improve profitability, and reducing equity financing, in most cases, indicates a strategic financing decision, none of which directly contribute to the depletion of cash leading to an overdraft. Therefore, excessive loan repayments is the most plausible cause of an overdraft situation in a business.