What is a business overdraft? - British Business Bank

A business overdraft is a line of credit on your business bank account that gives you more short-term cash flow than your business can fund from its own capital.

Where a business loan comes with fixed repayments and interest, a business overdraft charges interest only on the amount by which you’re overdrawn.

You can pay back a business overdraft as and when your cash flow allows, although your bank can demand repayment at any time.

It may also charge a fee for the overdraft.

You can increase or reduce your overdraft limit (depending on what your business needs), providing your bank approves this.

Setting up a business overdraft is straightforward, and is something you arrange with your bank.

Depending on the options your bank provides, you can typically arrange an overdraft online, over the phone or in branch.

High rate of approval

Typically, you will be able to arrange a business overdraft without any issue.

Quick to arrange

The process of getting a business overdraft is very straightforward and is simply a matter of discussing your needs with your bank.

Pay off your debt as and when you cashflow allows

On some occasions, your bank might demand repayment, but usually you'll be able to repay what you've borrowed hen you have the available funds to do so.

Charges

If you're late with a repayment or miss it altogether, your bank might charge you a fee. This can also affect your credit report.

High interest rates

A business overdraft generally has a higher interest rate than business loans and other forms of borrowing.

Repayable on demand

With some business overdrafts, you'll have to repay them whenever your bank demands, rather than waiting until you can afford to do so.

Interest rates

A business overdraft isn’t free and you’ll pay an annual interest rate on the amount by which you’re overdrawn.

This rate varies between banks.

Typically, rates for overdrafts are higher than for business loans.

They can also change at any time so generally a business overdraft is considered a short-term solution.

Fees

As well as interest rates, you may also be charged the following:

Arrangement fee – for setting up the overdraft
Renewal fee – often charged each year when you come to renew the facility
Change fee – for changing (usually increasing) your overdraft limit
Unarranged overdraft fee – if you go over your overdraft limit

Bank Referral Scheme

If your business has been unsuccessful in applying for finance from some of the UK's major banks, this scheme could be able to help you find finance elsewhere.

If the scheme doesn't work for you, the participating banks must, by law, offer you a referral to another finance platform.

Other finance options

Click here to visit Leasing & Hire Purchase

Debt

A business can use Leasing and Hire Purchase to buy specific assets, like vehicles, machinery or other equipment.

Business stage	Early stage to established with a trading history
Annual turnover	Any
Sectors	Any
Regions	Any

Find a finance partner

Click here to visit Business Loans

Debt

A business borrows money from a loan provider such as a bank and then pays it back with interest over an agreed period.

Business stage	Established with assets and a trading history
Annual turnover	Any
Sectors	Any
Regions	Any

Find a finance partner

Click here to visit Direct Lending Fund

Debt

A business borrows money from a fund and repays it with interest. A fund may be able to provide loans where a bank will not.

Business stage	Established with assets and a trading history
Annual turnover	Any
Sectors	Any
Regions	Any

Find a finance partner

Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

Business overdrafts