Business Overdraft Accounts: Interest Rates and Features Explained

Businesses often use overdraft accounts to access extra cash for a variety of reasons. A business overdraft is designed to provide fill in the cash-flow gaps when you need it most, so your business can run smoothly.

What is a business overdraft?

A business overdraft is a revolving line of credit businesses can have access to when they need access to funds. For example, you may be waiting on payment from clients for completed projects, but you still need to be able to pay the bills and other ongoing business expenses.

A business overdraft can be useful to a wide range of businesses, as it offers the security and confidence that comes with knowing you will have the cash you need to pay suppliers and employees. It can also be used to expand your business or let you negotiate better terms on purchases by enabling you to afford larger upfront purchases.

How does it work?

A business overdraft is typically linked to the business transaction account you hold with your financial provider. It is a revolving line of credit that offers fast access to funds when you need them.

Business overdrafts are available in secured or unsecured form and with fixed or variable interest rates. There is typically no minimum or maximum term and you can tailor a flexible repayment schedule to fit perfectly with your budget.

What are the types of business overdraft?

• Secured loan. A secured loan requires you to offer an asset as security for the loan, which works to reduce the risk a lender faces by allowing you to access funds. By offering something as security, you can usually enjoy access to lower interest rates than on an unsecured loan and may also be able to take advantage of fewer fees.
• Unsecured loan. An unsecured loan does not require you to offer anything as security. As a result, you can typically expect higher interest rates and fees than on a secured loan because you pose more of a risk to lenders.

How do I compare business overdrafts?

• Secured or unsecured. Do you want to offer an asset as security for your loan or not?
• Interest rate. The lower the interest rate, the less you’ll have to pay in interest charges on the amount you spend. You can also choose between the security of a fixed rate and the potential savings possibilities a variable rate offers.
• Fees. Make sure to look at the fees and charges attached to every competing business overdraft. Look for application fees, annual fees and any other ongoing fees.
• Repayment options. What repayment options does your business overdraft offer? Do you need to stick to a rigid repayment plan or is there any flexibility built in? Look for an overdraft that lets you tailor repayments to suit your budget.
• Loan term. Some business overdrafts don’t feature any minimum or maximum loan term at all, while others will require you to pay the loan off over a period of at least 12 months. Make sure to check the term on each business overdraft you are considering.

What are the pros and cons?

Things to avoid

As business overdrafts tend to attract higher interest rates and fees than other lending products, you need to be wary of getting into too much debt. It’s also vital to familiarise yourself with all the fees and charges attached to an overdraft before signing up.

Another common issue is that many products allow the lender to recall the overdraft at any time. This can be highly inconvenient for business owners.

Business bank accounts that come with the option of an overdraft

In order to apply for a business overdraft, you'll need to open a business bank account to link the overdraft facility to.

There are a range of accounts out there which come with the option of an overdraft facility. Once you've opened the bank account, depending on the size of the overdraft and the type of entity your business is, you can apply and get approved for the overdraft online and link it to your account to start accessing the funds.

Compare business overdraft accounts

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Name	Product	Card access	ATM Withdrawal Fee	Fee Free Transactions p.m.	Monthly account fee
Westpac Business One Account - Low Plan		Mastercard	$0		$10	Special offer: Pay $0 Monthly Plan Fee for 12 months when you open a new Westpac Business One Low Plan account online before 3 December 2021 (T&Cs apply).	Go to site More Info	Compare	loading Fetching your data...
NAB Business Everyday Account ($0 Monthly Fee Option)		Visa	$0		$0	The NAB Business Everyday Account ($0 Monthly Fee Option) can be linked to an overdraft facility. Enjoy NAB's flexible repayment scheme. Access your funds via your NAB Business Visa Debit Card.	Go to site More Info	Compare	loading Fetching your data...
ANZ Business Advantage		Visa	$0		$10	A convenient everyday transaction account with one monthly fee. You can opt for a free linked ANZ Business Visa Debit card with this account.	More Info	Compare	loading Fetching your data...
ANZ Business Extra		Visa	$0		$22	Enjoy access to ANZ Internet Banking for Business, plus ANZ’s optional Business Overdraft facility, which can be attached to the ANZ Business Extra at your request.	More Info	Compare	loading Fetching your data...
NAB Business Everyday Account ($10 Monthly Fee Option)		Visa	$0		$10	A NAB overdraft can be attached to the NAB Business Everyday Account ($10 Monthly Fee Option). You can apply online if you're a sole trader or a company with up to 2 directors.	More Info	Compare	loading Fetching your data...

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Frequently asked questions

• Do I need to offer an asset as security? Not necessarily. Business overdrafts are available in secured and unsecured form.
• What is the purpose of a business overdraft? Overdrafts are designed to help you manage business cash flow, offering quick access to funds when you need them.
• What can I use the funds for? This is up to you. You might wish to use the funds to pay urgent expenses, expand your business or even negotiate better deals with suppliers.

Will my business be eligible for extra finance if I have a bank overdraft?

One of the most common business banking facilities is an overdraft. This type of financing ranges anywhere from $50,000 to $200,000 and is usually secured by property or other assets. Many businesses may come across situations where they need more funding but their bank doesn't approve the loan. This is usually because their secured assets only allow a certain funding limit.

If you're in a position where your bank won't increase your overdraft, you may still be eligible for extra financing, although it does depend on factors such as credit history, type of financing, assets and accounts receivables. Nonetheless, there are a host of options you can choose from.

What finance options can I consider if I have a bank overdraft?

Common financing facilities include lines of credit, charge cards and term loans. A host of non-bank lenders also offer non-traditional facilities such as invoice financing. In the end, the right decision should be based on your own situation, so consider your options carefully.

Line of credit

Here, your lender approves your credit up to a maximum limit. Repayments are made only based on the amount you withdraw and interest is charged on this amount. You'll also likely pay an annual fee.

Charge cards

These help manage day-to-day expenses by allowing you to charge transactions to a card. However, the amount borrowed must be paid in full by the end of the month. Although no interest is charged, you are required to pay an annual fee.

Term loans

These are secured or unsecured lump-sum loans, with the full amount disbursed upfront. You'll make fixed monthly repayments according to a predetermined schedule for the loan to be paid in full, with interest, by the end of the term (anywhere between one and seven years).

Invoice financing

This is an unsecured facility where you can get up to 85% of your invoices paid upfront from a factoring company, rather than waiting the full 30 to 60 days to receive payment from customers. Invoice factoring, which involves the financier collecting the invoice payments directly, is also an option.