Business Overdraft

A business overdraft is a credit facility linked to your business bank account that provides access to additional funds, improving short-term cash flow beyond what your business capital can support.

How does a business overdraft work?

Unlike a business loan, which has fixed repayments and interest, a business overdraft only accrues interest on the overdrawn amount.

Repayments are flexible and can be made when cash flow permits, although the bank reserves the right to request repayment at any time. Fees may apply for maintaining the overdraft.

You can request to adjust your overdraft limit, either increasing or decreasing it, subject to your bank's approval.

What are the benefits?

There are several potential benefits to business overdrafts, including:

• high approval rate: typically, most businesses can secure approval for a business overdraft
• simple to setup: the process of obtaining a business overdraft is straightforward and involves discussing your financial needs with your bank
• flexibility: banks may sometimes require immediate repayment of borrowed funds. However, typically, you can repay the amount owed when you have sufficient funds available.

What are the potential drawbacks?

Like all finance types, business overdrafts can bring with them potential disadvantages, including:

• charges: if you are late with or miss a repayment, you can incur fees and could also find your credit report impacted. As well as late charges, you may also have to pay additional fees such as an arrangement fee, renewal fee, change fee, or if you exceed your overdraft limit
• high interest rates: banks typically charge a higher rate of interest for business overdrafts than with other forms of finance
• repayable on demand: business overdrafts have a condition where the bank can demand full repayment when it chooses, rather than waiting for you to be able to afford to do so.

How do I access a business overdraft?

Obtaining a business overdraft is a simple process that can be arranged with your bank. Depending on the services offered, you may typically set it up online or over the phone.