Flexible business overdrafts

Much like personal overdrafts, business overdrafts can be a really useful way of accessing a little extra working capital when your business needs cash quickly. From covering a late payment, paying an unexpected bill or simply helping cash flow, business overdrafts are a great short term solution for businesses who need that extra safety net of funds.

What is an overdraft in business?
Flexible business overdrafts

How an overdraft in business works

A business overdraft is a set amount of additional money a bank or lender offers customers when their account runs out of money. Usually, an arranged overdraft option is a small amount made available if your business spends more than the balance in the account. 

Depending on the lender, the interest charge will vary and will be added on each day the account is overdrawn.

Business overdraft features

A business overdraft is a set amount added onto a business account that can be used to help a short term cash flow issue. Much like a flexible loan, the overdraft limit is there if needed and your business will only pay interest on the amount used. You don’t have to use the overdraft limit either and it doesn’t cost your business any extra if you don’t.

What are the benefits of having a business overdraft

There are plenty of benefits to a business overdraft- particularly if your business doesn’t have a consistent cash flow or needs additional funds to cover a bill. Some of the other key benefits are:

  • Instant access- unlike a loan, a business overdraft is instantly available without needing to apply and wait for the cash injection

  • Offers security- a business overdraft offers many businesses the security in case they need to cover a bill or buy more stock

  • Relatively low cost- Although they come with interest, you only ever pay interest on the amount your account is overdrawn by 

Some things to consider with a business overdraft

As with nearly all funding options, there are downsides as they aren’t designed to suit all businesses. Some things to consider if you are wanting to explore a business overdraft are:

  • The fees- As with personal overdrafts, business overdrafts do come with interest rates and you’ll be charged interest on the balance you’ve borrowed.

  • Limited borrowing- overdrafts are only designed to help businesses in a short period of time and are limited to a lower amount. They’re not ideal for businesses looking for larger cash injections or who may need to consider different finance options

  • Banks can terminate it- Overdrafts are completely controlled by the banks and if they change their policies, your overdraft can be terminated with short notice. This is particularly challenging for businesses who regularly rely on that extra cash flow.

It’s also recently become harder to get traditional business overdrafts from the major banks, as many of them have reduced or even removed overdraft options available to smaller businesses. This is particularly damaging to businesses such as hospitality, retail or tourism as they often have irregular income which can leave a significant gap in their working capital.

Luckily, there are lots of alternatives to business overdrafts that can still help cash flow for your business. Let's take a look at a few of the other alternatives for financing your business

Revolving credit facilities

Revolving credit facilities are very similar to overdrafts in practice as they're a consistent source of business funding with a pre-approved limit. It’s similar to having a business loan that's ready to go at any time. Revolving credit facilities are popular due to their flexibility; you can continue to borrow, pay back and borrow again as many times as your business needs.

Just like overdrafts, you only pay for what you use, so you can dip into the funds when you need them. It's worth noting that revolving credit facilities will often have setup costs, though. A revolving credit facility lets businesses access funds on a “tap in, tap out” basis. They can take advantage of their available funds as and when they need to and will only get charged interest when the facility is used. 

The flexible nature of this product can make it worth considering for SMEs in need of a speedy cash injection.

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Business credit cards

Another alternative to overdrafts is a business credit card as they’re a great source of working capital finance, offering SMEs instant access to funds when they need it. They work largely the same way as personal credit cards, but with business-specific features like expenses tracking and the ability to add multiple employees to the same account.

The main benefit to a corporate card is reduced admin for staff expenses, they’re easy to keep track of and the credit limits are usually higher too.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

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Merchant cash advances

Designed for companies that take customer card payments, merchant cash advances enable business owners to borrow a sum and pay it back through a percentage of their customers’ transactions. They allow businesses to advance cash against future card sales, with flexible repayments and the ability to top up once a portion of the advance has been repaid.

The main advantages of an MCA are speed and flexibility, as your business can start drawing down cash within hours of setting it up. This funding option works really well for those businesses that used to rely on overdrafts for an instant cash injection.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

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Other options

These are just a few of the alternatives that help small businesses that may have previously relied on using their business overdrafts.

Depending on your sector, you may be eligible for a variety of other working capital finance, including invoice finance if you offer trade credit to your customers, and trade finance if you're dealing with international buyers and suppliers.

Our panel of 120+ lenders can help you find the option that suits your business best from across the market.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Other options available

These are just a few of the alternatives that help small businesses who may have previously relied on using their business overdrafts.

Depending on your sector, you may be eligible for a variety of other working capital finance, including invoice finance if you offer trade credit to your customers, and trade finance if you're dealing with international buyers and suppliers.

Our panel of 120+ lenders can help you find the option that suits your business best from across the market.

Flexible Business Overdrafts

Check your eligibility with our online form without affecting your credit score.

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