A business overdraft is a short term borrowing facility attached to a business current account that lets the balance fall below zero up to an agreed limit, with interest charged on the amount used.
General information, not financial, legal, or tax advice. Verify current terms and eligibility with the provider before applying.
How a business overdraft works
An arranged business overdraft, sometimes called an authorised overdraft, is agreed in advance with the bank. The business applies for a limit, the bank assesses the business, and if approved the facility lets the current account balance go below zero up to that limit. Interest is typically charged only on the amount drawn and calculated on a daily basis, and the limit is available to use and repay as needed rather than drawn as a lump sum. Facilities are commonly arranged for a period of up to twelve months and then reviewed or renewed. These are general features as of 12 December 2025, and the limit, rate, and fees depend on the provider and the business.
Interest and fees
Interest on a business overdraft is usually expressed as a margin over a reference rate and charged only on the balance used, calculated daily. Providers may also charge an arrangement fee to set up the facility and a renewal fee when it is reviewed, often scaled to the size of the limit, and going over the agreed limit can trigger higher unarranged borrowing charges. The exact rate and fees vary widely by provider and by the business's credit profile, so a business should confirm current pricing with the bank.
When a business overdraft fits
An overdraft suits short term and uneven cash flow needs, such as bridging the gap while invoices are paid or covering a seasonal dip, because it is there when needed and costs nothing extra when not drawn. It is generally less suited to funding a large planned investment, where a term loan or other facility with a fixed repayment schedule may cost less over time. A business should compare the overdraft against other borrowing options and check the terms with the provider.
Frequently asked questions
What is a business overdraft?
How is interest charged on a business overdraft?
Are there fees for a business overdraft?
Is an overdraft or a loan better for my business?
Definitions, fees, features, and eligibility change and vary by region. This page was last reviewed on 12 December 2025. Confirm current terms with the provider before applying.