What is a small business overdraft?

A small business overdraft is like a safety net provided by a bank. It allows you to spend a little more money than you have in your account, so long as you can pay it back later.

Overdrafts are often a helpful business finance option for handling small, temporary financial gaps, but it's important to be cautious and not rely on them for long-term funding.

Eligibility and exclusions

A business owner with a stable financial track record, consistent cash flow, and a good credit score would be eligible to use an overdraft for business. Banks generally prefer working with financially responsible and reliable businesses.

Benefits and scenarios

Overdrafts are usually quick and easy to apply for and can help you access cash quickly when you need it most.

You’re also only allowed to borrow up to a certain limit, which means you don’t have to take out a large loan all at once. It’s also flexible and doesn’t tie you down to a long-term loan.

Risks

Borrowing money on an overdraft can be expensive
if you’re not able to pay it back.

If a bank starts to think that you’re not able to continue
to repay what you borrowed, it can reduce your overdraft
limit at any point, making it harder to borrow in the future.

Things you can use to
secure the finance

All you need to secure an overdraft is a bank account with a good credit history and evidence of reliable repayments.