Overdrafts are lines of credit provided by banks when you withdraw more than your available credit. They effectively increase the funds available to you and work in a similar way to personal overdrafts.

More than 16% of SMEs use an Overdraft

British Business Bank SME Finance Monitor 2017

Key requirement

You need an existing business bank account or to be willing to set one up to access an Overdraft

Key benefit

Helps finance working capital quickly through your bank

Key consideration

Traditionally short-term working capital solutions

What is an Overdraft?

Overdrafts are lines of credit on your business’ bank account that helps short term cashflow beyond what your business can fund from its own capital.

Where a Business Loan comes with fixed repayments and interest, Overdrafts charge interest on the overdrawn balance only. They can be repaid as and when your cashflow allows.

Overdrafts can be repayable on demand at any time by your bank and fees may be charged by the lender for the arrangement.

You can increase or decrease Overdraft limits depending on your business’s needs subject to your bank’s approval.

Who’s involved in a Business Overdraft?

Setting up a Business Overdraft is straightforward and involves you and your bank. You can typically arrange Overdrafts in a branch, over the phone and online depending on your bank.

Is my business eligible for an Overdraft?

If you don’t fulfil some of the eligibility requirements set out by your bank, you may be refused an Overdraft.

Banks review your business and its financial history when you apply for an Overdraft. Your personal and business credit history will be checked with a credit reference agency to see if you are a reliable borrower.

You may need to outline how you will use and repay your Overdraft. Typically, the larger the Overdraft you want, the more details your bank may need to see.

You may need to provide an asset such as property as security for the Overdraft too. If you can’t provide an asset or you don’t have assets of sufficient value on your balance sheet, your application may be denied.

There are other basic criteria you’ll need to fulfil too, for example, you’ll need to hold a business account with the bank, or be willing to set one up, and you must have authority to commit your business to the borrowing.

67% of new Overdraft applications were successful in Q2 2017

British Business Bank SME Finance Monitor 2017

What if your business is declined an Overdraft?

In November 2016, the Bank Referral Scheme was launched. The Bank Referral Scheme helps eligible businesses that have been unsuccessful in applying for finance from some of the UK's major banks find finance elsewhere.

If you're unsuccessful, participating banks are required by law to offer you a referral to an alternative finance platform.

Overdraft fees and considerations

Overdrafts aren’t free and you will pay an annual interest rate on the amount you are overdrawn. This rate varies by provider.

Typically, rates for Overdrafts are higher than Business Loans, can change and are repayable on demand. As a result, Overdrafts are generally used as short-term solutions.

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

  • Arrangement fee for setting up the Overdraft facility
  • Renewal fee often charged on an annual basis to renew the facility
  • Change fee if you want to change your overdraft limit
  • Unarranged Overdraft fee if you go over your Overdraft limit

Benefits of Business Overdrafts

High rate of approval

Quick to arrange

Pay off your debt as and when your cashflow allows

Risks of Business Overdrafts


Late or missed repayments can result in charges and can also impact your credit report in some instances.

High interest rates

Overdrafts generally have higher interest rates than Business Loans and other forms of borrowing.

Repayable on demand

Some Overdrafts are repayable on demand by your bank.

Need to know

  • What is your Overdraft's Annual Interest Rate?
  • Is your Overdraft repayable on demand?
  • What charges or fees apply?

Is an Overdraft right for you?

About your business

Business stageEstablished with assets and a trading history
Annual turnoverAny

What's your next step?

Other finance options

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