Business overdrafts

A line of credit your bank provides when you need to withdraw more money than you have available.

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.

 

Finance Hub Guidance and information

Other finance options

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Corporate Venture Capital is an investment made by a large company into a smaller business, in return for a share of that business.

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An early stage business - no revenue or profit is needed - willing to give up a share of control.

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Time of finance 6-12 months
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Annual turnover Depends on the business
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Mature, growing and profitable business with an annual turnover typically between £10m and £100m.

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Finance in the region of £10m to £50m to shake up your business through management buy-outs, acquisition, product development or entry into new markets.

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Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
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Purpose of financessss Change in shareholder ownership, management buy-outs, acquisition, product development, entry into new markets
Amount of finance £10m-£50m
Duration of finance 3-5 years
Cost of finance Monitoring and director fees; loan note interest
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Annual turnover £10m-£100m
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A business secures finance against its existing assets; these can include invoices and also machinery, property and even intangible assets such as IP.

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Making business finance work for you

Making business finance work for you

Starting a business doesn’t come with a set of instructions.

We know that understanding the many different types of financial product in the marketplace can be difficult.

Our Making business finance work for you guide is designed to help you make an informed choice about accessing the right type of finance for you and your business.