A business overdraft is a loan of credit by a lender that gives a business flexible access to funds when it needs to draw them. A business overdraft is often linked directly to your business account.
- Fast access to money with non-bank lenders
- Only pay interest on the amount of credit you draw down
- Flexible access to finance
- Unsecured overdrafts may have high rates
- High amount of revenue needed to qualify
- Not suitable for start-ups due to minimum operating time requirements
A lender will agree to make an amount of credit available to your business, which you can then access whenever you need to and for whatever reason. Once you are approved for a business overdraft, you should be able to access and withdraw funds within 24 hours.
A business overdraft will be linked to your business banking account, and you will pay back any amount withdrawn – plus interest – through scheduled payments.
Depending on the annual turnover of your business, you may be given the option to choose between weekly or monthly repayments. Interest will only accrue on the amount you withdraw from your overdraft.
You can apply for a business overdraft with some banks and fintech lenders. Generally, specialist lenders will offer faster approval at slightly higher rates. Most specialist non-bank lenders will also allow you to apply online.
To qualify for a business overdraft, lenders will need to conduct a credit assessment. Most lenders will be able to provide options if you have been trading for three years, have an Australian Business Number (ABN) and are registered for GST.
The minimum you will need to provide a lender with is your ABN and business bank statements. You may also be asked to provide a profit and loss statement, or access to your Australian Tax Office (ATO) Portal.
Terms on a business overdraft range from 3 months to 5 years. However, even if you agree to a 5-year term with a lender, they may be able to review the overdraft facility at any time.
Overdrafts may include a facility fee to ensure the funds are always available. You will still pay the monthly facility fee whether you draw the funds or not, separate to any interest accrued on the amount you withdraw. Interest is often calculated on the amount withdrawn and each time you make a withdrawal.
You may need to pay an application fee, which is usually a percentage of your total overdraft.
Each lender will have their own repayment requirements. Some specialist lenders may set a minimum principal repayment amount, while banks may only require payments on interest charges.
A business overdraft can be unsecured, or secured by using your property as collateral. A secured business overdraft will have lower interest rates.
Once you withdraw funds using your overdraft, you will be required to repay the withdrawn amount – and any interest accrued – through scheduled payments. You may be given the option to choose between weekly or monthly repayments.