Whether you’re just starting out in the business world, or are an experienced entrepreneur looking for a new overdraft facility, understanding how UK business overdrafts work is essential. There are lots of considerations to make when choosing the right solution for your company’s needs and it can be tricky to get the information that you need. To help, this guide will explain the basics about UK business overdrafts.
Best business overdrafts UK
| Bank | Lowest monthly fee | Offers current account? | Offers savings account? |
|---|---|---|---|
Allied Irish Bank | £2.50 | Yes | Yes |
Bank of Scotland | Free | Yes | Yes |
Clydesdale Bank | £6.50 | Yes | Yes |
Co-operative Bank | £7 | Yes | Yes |
Cumberland Building Society | Free | Yes | Yes |
Cynergy Bank | £5 | Yes | Yes |
Danske Bank UK | £9 | Yes | Yes |
HSBC | £6.50 | Yes | Yes |
Kinetic | £6.50 | Yes | Yes |
Lloyds Bank | Free | Yes | Yes |
Metro Bank | £6 | Yes | Yes |
NatWest | Free | Yes | Yes |
Royal Bank of Scotland | Free | Yes | Yes |
Santander | £7.50 | Yes | Yes |
State Bank of India (UK) | £25 | Yes | Yes |
Triodos Bank | Free | Yes | Yes |
TSB | £5 | Yes | Yes |
Ulster Bank | £2.67 | Yes | Yes |
Yorkshire Bank | £5 | Yes | Yes |
What is a business overdraft?
A business overdraft is an arrangement with a bank that allows a business to borrow money up to a certain limit. This can be a useful way to manage cash flow and deal with unexpected costs. Interest is charged on the amount borrowed, and the business will need to repay the debt plus interest and any other fees.
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Why would a business use an overdraft?
An overdraft can be a useful tool for businesses that need to manage cash flow and access short-term finance quickly. It can also help businesses deal with unexpected costs, or take advantage of business opportunities.
What features make a good business overdraft?
When choosing a business overdraft, it’s important to look for features that fit your business needs. Some features to consider include interest rates, fees, repayment terms, and access to credit limit increases. It’s also important to read the fine print; make sure you understand the full details of the overdraft agreement before signing up.
Which UK banks offer the best business overdrafts?
The best business overdrafts will depend on your individual circumstances, but some of the top UK banks offering business overdrafts include HSBC, Lloyds Bank, Barclays, NatWest and Santander. Each bank offers different features, so it’s important to compare the options and find one that suits your business needs.
What fees are usually payable on a business overdraft?
As well as the interest payable, business overdrafts typically come with fees for transactions, such as deposits and withdrawals. There may also be a set-up fee as well as other account maintenance fees. It’s important to factor in the cost of these fees when calculating the total cost of your overdraft.
It’s important to remember that an overdraft is a form of short-term borrowing, so you should make sure that you’re able to repay the debt in full and on time. Make sure you review your business overdraft regularly and use it wisely to ensure you get the most out of it.
Secured and unsecured business overdrafts
Overdrafts can be secured against property or other assets, or unsecured. Unsecured business overdrafts are usually offered for smaller amounts and come with higher interest rates than secured options. Businesses should always shop around to compare different offers from banks before deciding on an overdraft facility.
How does a business overdraft work?
A business overdraft works by allowing a business to borrow money up to a pre-agreed limit, which is known as the credit limit. You can withdraw money from your account up to the credit limit and repay it back in instalments plus interest and any other fees. Businesses will need to arrange an overdraft with their bank before they can use it.
How to get a business overdraft
Getting a business overdraft typically involves filling out an application form with your bank and providing proof of your business’s financial position. Banks will then assess the application to decide whether they can offer you an overdraft and at what terms. Depending on the size of the overdraft, banks may also ask for security in order to reduce their risk.
FAQ
The amount of overdraft you can get depends on your business’s income and ability to repay the debt. Banks will usually offer larger overdrafts if they are secured against assets, such as property or other investments.
The cost of an overdraft will depend on the interest rate and fees charged by your bank. Most banks will charge a flat fee for using the overdraft, as well as a variable interest rate that is applied to the outstanding balance.
A business overdraft is a type of short-term borrowing facility linked to a business bank account. It allows a company to spend more money than is available in its account, up to an agreed limit.
A business overdraft provides a buffer of extra funds that can be accessed when needed. Interest is typically charged only on the amount used, and there may also be arrangement fees.
Flexibility – You only borrow what you need.
Interest on usage – Interest is charged only on the overdrawn amount.
Quick access – Funds are available immediately when required.
No fixed repayments – Unlike loans, repayments are not fixed and can be made at any time.
Higher interest rates – Overdrafts often have higher interest rates than business loans.
Limited borrowing capacity – The overdraft limit may not be high enough for long-term financial needs.
Repayable on demand – The bank can withdraw the facility at any time, potentially causing cash flow issues.
The amount varies depending on the bank, your business’s creditworthiness, and financial standing. Limits typically range from a few thousand to several hundred thousand pounds.
For small overdraft limits, banks may offer unsecured facilities. However, for larger overdrafts, security such as business assets or a personal guarantee may be required.
Interest is usually charged daily on the overdrawn balance. The rate varies depending on the bank and your agreement, and it is often higher than loan interest rates.
Yes, common fees include:
Arrangement fee – A one-off charge to set up the overdraft.
Renewal fee – Charged when the overdraft is renewed annually.
Unarranged overdraft fees – If you exceed your agreed limit, penalty charges may apply.
You typically need to:
Have a business bank account with the provider.
Provide financial statements or projections.
Show evidence of business income and cash flow.
Meet the lender’s credit requirements.
Startups may find it more challenging to secure an overdraft, especially if they have limited financial history. Some banks offer startup-friendly overdrafts, but they may require personal guarantees.
If you go over your agreed limit, your bank may:
Charge additional fees and higher interest rates.
Decline transactions, which could affect supplier relationships.
Report the issue on your credit file, impacting future borrowing.
Yes, you can usually cancel it at any time by paying off any outstanding balance. However, some banks may charge a fee for early termination.
If a business overdraft isn’t suitable, you might consider:
Business loans – For structured, long-term borrowing.
Business credit cards – For short-term spending needs.
Invoice financing – To get early access to unpaid invoices.
Asset-based finance – Borrowing against business assets.
Yes, your business’s credit score can be impacted by how you use your overdraft. Regularly exceeding limits or missing payments may harm your credit rating.
Yes, you can apply for a limit increase, but approval depends on your financial history and ability to repay. The bank may require updated financial documents.
Most major UK banks offer business overdrafts, but terms, interest rates, and fees vary. It’s worth comparing options before applying.