Business overdraft
A borrowing limit on your business bank account. You pay interest only on what you use, but the bank can usually ask for it back at any time.
- Personal guarantee likely
How it works
An overdraft lets your business account go below zero, up to an agreed limit. You pay interest only on the amount you are overdrawn, and repay it as money comes in.
You arrange it with your bank, usually online, by phone or in a branch. You can ask to raise or lower the limit.
Overdrafts are meant for short-term needs. Interest rates are usually higher than for business loans and can change at any time, and many overdrafts are repayable on demand.
Upsides and downsides
Upsides
- Quick and simple to arrange with your bank
- You pay interest only on what you use
- Repay as cash comes in
Downsides
- Usually a higher interest rate than a business loan
- Interest rates can change at any time
- Several fees on top of interest
Risks
- The bank can usually demand repayment at any time
- Late or missed repayments can harm your credit record
- Relying on an overdraft for long-term needs
What it costs
- How it is priced
- Interest on the amount overdrawn, plus fees
- Costs that are easy to miss
- Arrangement fee to set it up
- Renewal fee, often each year
- Fee for changing the limit
- Unarranged overdraft fees if you go over the limit
Agreed with your bank, based on your account history and cash flow.
Does it fit?
Could fit when
- You have short, regular gaps between paying out and getting paid
- You want a buffer for unexpected costs
Unlikely to fit when
- You need money for a long-term investment such as equipment or property
- You would be overdrawn all the time
Who can use it
- Business types: Sole trader, Partnership, Private limited company, LLP, Public limited company, Community interest company, Co-operative or community benefit society, Charity
- Needs sales (revenue)
- You need a business bank account with the lender
Am I ready?
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- Account history
- Cash flow forecast
Regulation and protections
Many smaller businesses can take an unresolved complaint about a bank to the Financial Ombudsman Service. If major banks turn you down for finance, they must offer to refer you to finance platforms under the Bank Referral Scheme.
Types of provider: High-street banks; Challenger banks.
Also consider
Sources
- British Business Bank: Business overdrafts · checked 7 October 2026
- Financial Ombudsman Service (small business): Who we can help · checked 7 October 2026