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 cashflow 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 cashflow 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 your cashflow allows
On some occasions, your bank might demand repayment, but usually you'll be able to repay what you've borrowed when you have the available funds to do so.
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.
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.
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
Corporate Venture Capital
|Purpose of financessss||Acquisition, research and development|
|Amount of finance||£1m+, depending on business|
|Duration of finance||3-5 years|
|Cost of finance||None|
|Time of finance||6-12 months|
|Annual turnover||Depends on the business|
|Business stage||Established with assets and a trading history|
|Business stage||Established with a trading history|
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