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Business bankingLast updated: 15 Oct 2026
A flexible way to manage cash flow
Business overdrafts
Business overdrafts are a flexible safety net on your business bank account that keeps short cash flow gaps from holding you back.
Whether you're covering a temporary gap in cash flow, waiting for a payment to come through, or managing seasonal fluctuations, they can be helpful to keep your business on track.
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What is a business overdraft?
A business overdraft lets you spend more than the balance in your business current account, up to a limit your bank agrees in advance. It acts as a financial safety net, giving you access to funds when your balance is low.
It's designed to cover short gaps, such as waiting on a late customer payment or getting through a quieter month, rather than a large one off purchase. A business overdraft is one of the three main types of business credit line, alongside lines of credit and revolving credit facilities.
What are the benefits of a business overdraft?
Benefit from flexible borrowing
With a business overdraft, you borrow and repay funds as needed, as long as it’s within the approved limit. This gives you the flexibility to use the funds when you need them most.
Access funds quickly
Setting up an overdraft is usually a fast process, which is a real advantage when you need cash fast, for example to cover an upcoming bill.
Pay interest only on what you use
You only pay interest on the money you actually use, not the full limit. This means you can manage your interest expenditures.
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How does a business overdraft work?
Once approved, your overdraft acts as an extension of your existing balance. Here's how an overdraft works:
An arranged overdraft is agreed in advance with a set limit and rate. If you go over that limit, or spend beyond your balance without one in place, you're using an unarranged overdraft, which costs far more.
How much does a business overdraft cost?
The cost of a business overdraft depends on your bank, your limit and how long you stay overdrawn. Rates are variable, so they can rise or fall with the Bank of England base rate.
Cost | What to expect |
|---|---|
Arrangement fee | Charged when your overdraft is set up. As an example, banks often charge 1% to 2.5% of your limit with a minimum fee, though this varies by provider. |
Interest | Charged daily on the amount you draw. Representative rates at major UK high street banks currently range from around 5% to 17% EAR, and your own rate depends on your credit profile. |
Renewal and account fees | Many banks charge a fee each time your overdraft is renewed, and some charge regular monthly or annual fees whether or not you use it. |
Unarranged borrowing | A much higher rate if you go over your limit, plus possible charges for payments that can't be made or repayments that are missed. |
To see how interest adds up, drawing £5,000 at 15% EAR for 20 days costs £38.44. Leaving the same amount drawn for 90 days costs £175.31, so clearing your balance quickly makes a real difference. For a balanced look at the costs and risks, read our guide to the pros and cons of a business overdraft.
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What do banks look for when approving a business overdraft?
Your bank wants to see that your business can comfortably repay what it draws. Having these ready can help your application move faster.
What are the alternatives to a business overdraft?
If you need a higher limit, a longer term or funding your bank can't withdraw at short notice, another type of business finance may suit you better. Capitalise can help you compare these options from our panel of 130+ lenders.
Alternative | How it differs from an overdraft | Best for |
|---|---|---|
Works in a similar way, but it's agreed for a set term and isn't tied to your bank account. | Ongoing working capital needs like stock or payroll | |
A flexible pot of funds from a bank or alternative lender, repaid with minimum monthly payments. | Flexibility when you don't know exactly when you'll need funds | |
Spend up to a limit and repay each month, with some cards offering an interest free period. | Smaller everyday purchases and expenses | |
Releases cash tied up in unpaid invoices instead of borrowing against your account. | Businesses waiting on customers to pay | |
An upfront sum repaid as a share of your future card sales. | Businesses with regular card takings | |
A lump sum repaid in fixed instalments over a short, agreed term. | One off costs with predictable repayments | |
A larger lump sum repaid over several years. | Growth plans and major investment |
Need a bigger limit than your bank can offer?
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Apply with Capitalise
Tell us about your business, how much you need and what it's for.
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Gather your documents
Your dedicated funding specialist helps you gather your documents, puts your application together and sends it to suitable lenders from our panel of 130+.
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Receive your funding
Compare your offers with your specialist's support. Once you accept, funds can reach your account in as little as 48 hours.
Apply for funding and find out your business options
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