For many businesses, an overdraft facility is an essential feature when choosing a bank account. It allows companies to overdraw their accounts up to an agreed limit, providing a buffer in times of temporary cash shortfalls.
However, while challenger banks continue to gain traction in the UK’s banking sector with their digital-first, quick-to-open accounts, it is also quite rare to find those that offer overdraft facilities.
I’ve researched this area in depth and listed the top accounts from both high-street and challenger banks below.
Best Business Accounts with Overdrafts in 2024
| Bank | Interest Rates | Overdraft Limits | Notes |
|---|---|---|---|
| Starling | Representative 11.50% EAR | £1,000 to £50,000 | Personal guarantee required, 24/7 account management via app |
| Zempler | Representative 69.9% APR | Up to £2,000 | Short-term solution, no credit checks, 24/7 online account management |
| Virgin Money | Representative 14.70% EAR | Up to £1,000 (Virgin M Account) | Monthly account fees, 24/7 mobile banking, cashback rewards |
| NatWest | Representative 14.92% EAR | £500 to £25,000 | No account management fees, 24/7 mobile banking, current account switch guarantee |
| Metro Bank | Representative 15.86% EAR | Up to £25,000 | Monthly fee waived for balances over £6,000, top-rated customer service |
| Lloyds Bank | 10.85% above BoE rate | Up to £25,000 (Turnover < £3m) | Monthly usage fees apply, experienced UK-based support team |
| Barclays | 18.07% to 14.99% EAR | Up to £25,000 (up to £50,000 on request) | Overdraft fees apply, 24/7 online & mobile banking, current account switch guarantee |
| Santander | Representative 10% EAR variable | Up to £25,000 | Annual fees apply, 24/7 online & mobile banking, multiple cashback rewards |
| HSBC | Representative 16.25% EAR | Up to £30,000 | Monthly account management fee, multiple price plans available, 24/7 online & mobile banking |
| TSB | Representative 14.44% EAR | £5,000 to £15,000 | One-time arrangement fee, 24/7 online account management, experienced UK-based support team |
| Co-operative Bank | Representative 11.85% EAR | Up to £25,000 | Waived arrangement fee for FSB account holders, 24/7 mobile & online banking |
| Bank of Scotland | 10.85% above BoE rate | Up to £25,000 (Turnover < £3m) | Monthly usage fees apply, 24/7 online & mobile banking, current account switch guarantee |
| Royal Bank of Scotland | Representative 14.92% EAR | £500 to £25,000 | No monthly account fees, 24/7 online & mobile banking, current account switch guarantee |
| Ulster Bank | Representative 12.82% EAR | £500 to £25,000 | Quarterly account management fee, 24/7 UK support with Bankline, current account switch guarantee |
| Allied Irish Bank (GB) | Representative 13.92% EAR | Up to £25,000 | Fees for overdraft renewal or increase, 24/7 access with internet banking & |
Starling Bank’s Business Overdraft
Starling’s business overdraft is a bolt-on to Starling’s already excellent bank account, which combines some of the best features of any challenger bank, including responsive customer service, competitive pricing, and a well-designed app.
Offering simple, flexible access to borrowing, Starling’s overdraft ensures that businesses only pay interest on the amount they use. This facility is designed for limited companies and limited liability partnerships, providing a range from £1,000 up to £50,000.
NB: While Starling is one of the few challengers which offer this facility, it’s worth noting the annual interest rate of 11.5% representative APR, along with a yearly fee of 1.75%, means a business loan could be a more cost-effective option.
Starling Bank Business Current Account
Monthly Fee
£0Bank Transfers
£0Card Purchases
£0Overdraft
Yes
FSCS Protection
YesAccessibility
Access your Starling Bank account via the web or mobile app
- Credit Limits: Business overdrafts are available from £1,000 to £50,000.
- Security Requirements: A personal guarantee is required as security for the overdraft.
- Interest Payments: Interest is charged only on the amount borrowed.
- Fees: There is a 1.75% arrangement fee upon acceptance and annually thereafter.
- Eligibility: Available to limited liability companies and limited liability partnerships only, excluding sole traders. All applications undergo a full credit assessment by Starling’s expert lending team.
– All directors with access to the account must be at least 16 years old and UK residents.
– All Persons of Significant Control must be UK residents and natural persons.
– You must be either a sole trader or the director of a limited company or LLP registered with Companies House.
– The business must not be a holding company, dissolved, or in liquidation.
– Businesses operating from outside the UK are excluded.
– Charities/trusts and high-risk businesses are not eligible.
Zempler Bank’s Business Overdraft
The Zempler Business Account, formerly known as Cashplus, is a good option for businesses looking for a quick and easy bank account setup, with the security of FSCS protection and no credit check required. It’s well-regarded by customers and offers a real alternative to traditional banks. Key benefits include no monthly fees, UK customer support, and integration with accounting software like QuickBooks, Xero, and Sage. You also get a Mastercard debit card, free online banking, SMS alerts, and a mobile app for managing your account.
The Zempler small business overdraft is designed to offer up to £2,000 in funds to cover occasional bills or necessary maintenance, ensuring your business operations continue smoothly.
No annual fee
Zempler Bank Business Go Account
Monthly Fee
£0Bank Transfers
30p
Card Purchases
£0Overdraft
YesFSCS Protection
NoAccessibility
Access your Zempler Bank account via the web or the mobile app
- Credit Limit: Businesses can borrow up to £2,000 with an arranged overdraft.
- Short-Term Flexibility: The overdraft is available for 30 days at a time
- Interest Structure: With a representative 69.9% APR (variable), the first £5 is interest-free
- Account Options: Compatible with both Zempler Business Bank Accounts.
- Ease of Management: The account can be managed 24/7 online from any device
- Application Simplicity: The application process does not require a credit check, although eligibility for an overdraft may involve a credit assessment.
- Customer Satisfaction: A Trustpilot rating of 3.6 stars out of 5
- Security and Confidence: As a fully regulated online bank with FSCS protection
– You must be at least 18 years old and have a UK residential address.
– You must be a sole trader, director of a limited company, a charity or a partnership based in the UK.
– Sole traders cannot be registered at UK Companies House. Limited companies must have no more than 4 PSCs registered with Companies House.
– High-risk organisations are not eligible.
– Businesses operating from outside the UK are excluded.
Virgin Money Business Overdraft
Virgin Money offers a business overdraft facility designed to provide flexible financial support for businesses facing unexpected cash flow challenges. In fact, their Virgin M Account for Business account comes with an automatic planned borrowing amount limit of £1,000 for 12 months maximum.
Virgin Money Business Current Account
Monthly Fee
£0
Bank Transfers
£0.30
Card Purchases
£0
Overdraft
Yes
FSCS Protection
YesAccessibility
Access your Virgin Money account via the web, mobile app or telephone
- Credit Limit: Virgin Money provides unsecured overdrafts up to £25,000, catering to a wide range of business needs.
- Cost of Borrowing: The Representative EAR is 14.7%, with an interest rate per annum (variable) of 13.75%, calculated daily and charged monthly, making the cost of borrowing transparent.
- Fees and Charges: An establishment fee of 2.5%, with a minimum of £120, applies to the overdraft facility, ensuring businesses are aware of upfront costs.
- Interest Calculation: Interest is calculated on a daily basis and charged monthly, allowing for a clear understanding of borrowing costs over time.
– You must be 18 years old.
– You must be the owner/director of your business, which must be based and operate in the UK (except the Channel Islands, Isle of Man, and NI).
– At least one business owner needs to be a UK resident.
– You must have a maximum annual turnover of no more than £1 million to apply for an M Account or no more than £6.5 million for the Business Current or Choice Accounts.
– You must not be currently bankrupt.
– You must not have ever been disqualified as a company director.
– Businesses operating from the Channel Islands, Isle of Mann, NI or outside the UK are excluded.
– Charities, those holding clients’ money and high-risk organisations are not eligible.
NatWest Business Overdraft
NatWest offers a range of business accounts designed to meet the needs of various business stages and types, including startups, established businesses, and community groups. With options for both traditional and mobile banking through the Mettle app, NatWest provides flexibility, no monthly fees for certain accounts, and access to features like integrated accounting software. These accounts aim to support businesses with their daily financial operations and growth aspirations.
NB, if you want an overdraft you won’t be able to use the Mettle account, but will need to opt for one of their traditional high-street accounts.
Key Features of NatWest’s Business Overdraft
- Flexible Limits: Offers business overdrafts from £500 to £25,000, suitable for a 12-month period, with the option to adjust limits as needed through an online application.
- Cost of Borrowing: Interest rates are competitive, with EAR representative rates ranging from 15.03% to 14.92%, alongside arrangement fees starting from £50, depending on the overdraft limit.
- Repayment Flexibility: No set monthly repayment amount, providing flexibility to manage cash flow effectively.
- Annual Review: Overdrafts are subject to an annual review, with a renewal fee applicable for continued facility use.
- Security and Fees: Security may be required for the overdraft, and exceeding the agreed limit incurs charges and fees based on the terms of the agreement.
Metro Bank Business Overdraft
Metro Bank’s business account offerings cater to a wide range of businesses with features like immediate account and debit card setup, extensive borrowing options, and accounting software integration. Open seven days a week, their branches provide convenient access, although they impose a £6 monthly fee for balances below £6,000 and limit fee-free transactions, affecting those with lower balances. Additionally, their presence is limited in Scotland, Northern Ireland, and Wales, and customer service hours are restricted, presenting potential drawbacks for some businesses.
Metro Bank Business Bank Account
Monthly Fee
£0Bank Transfers
30p
Card Purchases
30p
Overdraft
YesFSCS Protection
NoAccessibility
Access your Metro Bank account via the web or the mobile app
- Overdraft Limit: Up to £60,000 available through the Metro Bank App or in-store for flexible arranged overdrafts.
- Transparent Fees: Clear information on rates and arrangement fees, with interest charged only on the borrowed amount.
- Application Process: Straightforward and quick, with instant eligibility confirmation in the app.
- Annual Reviews: Overdrafts are reviewed yearly to ensure they continue to meet your business needs.
- Charges for Overdrafts: A variable interest rate of 15.86% EAR for limits up to £25,000, with specific terms for higher amounts. Additional fees apply for exceeding the agreed limit.
– You must be over 18 years’ old.
– Your business must not exceed £2mil for this account.
– You must be one of the following: sole trader, limited company, limited guarantee, or limited liability partnership.
– Charities or trusts are not eligible.
– Businesses not based in the UK are excluded.
Lloyds Business Overdraft: Overview and Key Features
Lloyds Bank’s Business Overdraft provides flexible access to funds up to £25,000 directly through their banking app or in-branch discussions for larger needs. This overdraft facility is designed with transparency and simplicity in mind, offering clear insights into interest rates and fees, thus ensuring businesses only pay for what they use.
Lloyds Bank Instant Access Business Account
Monthly Fee
£8.50
Bank Transfers
20p
Card Purchases
£0Overdraft
YesFSCS Protection
YesAccessibility
You can access your Lloyds Bank account via the web, the mobile app or over the phone
- Overdraft Limit: Options range from £500 to £25,000 through an easy application process, with rates and fees clearly outlined.
- Pricing Structure: The representative EAR of 17.34% varies with the Bank of England Bank Rate, emphasizing cost-effectiveness with interest charged only on utilized funds.
- Application Simplicity: Lloyds Bank streamlines the process, offering immediate feedback on eligibility without impacting credit ratings.
- Annual Review: Ensures the overdraft continues to meet business needs, with adjustments to terms as necessary.
- Fees: A structured approach to fees based on the overdraft amount, including a monthly usage fee or an annual fee, with specific considerations for unarranged overdrafts.
– You must be at least 18 years old and reside within the UK.
– You must be a sole trader, director of a limited company or in a partnership.
– You must have an annual turnover of no more than £6.5m.
– Businesses operating from outside the UK are excluded.
Barclays Business Overdraft: Overview and Key Features
Barclays Bank provides business banking services tailored for every phase of a company’s growth, from startups to well-established businesses, including specialized accounts for charities and community groups. With a focus on accessibility and support, Barclays ensures businesses can efficiently manage their finances through various credit options and digital banking solutions. This approach helps businesses navigate financial challenges with ease, backed by the security of FSCS protection for eligible deposits.
Barclays Bank’s Business Overdraft offers an essential financial buffer, enabling access to additional funds up to £50,000. This facility is tailored for businesses seeking day-to-day cash flow support, with an easy setup and rapid access to funds if approved unsecured.
Key Features of Barclays’s Business Overdraft
- Overdraft Limit: Flexible options from £1,000 to £50,000, catering to various business needs.
- Interest Rates: Competitive rates with a representative EAR of 18.07% for the lower band, decreasing to 14.99% for higher amounts.
- Fees: Structured overdraft fees ranging from £95 to £250, depending on the overdraft limit.
- Application Process: Straightforward, with immediate feedback on eligibility via the Barclays app or in-branch.
- Flexibility: Ability to increase or decrease the overdraft limit based on business fluctuations.
- Annual Review: Regular assessments to ensure the overdraft aligns with your business requirements.
What Is a Business Overdraft?
A business overdraft is a credit facility that allows businesses to withdraw more money from their bank account than what is actually available, up to an agreed limit. This can provide a company with the flexibility to manage its cash flow, especially to cover short-term financial needs or unexpected expenses. Overdrafts are typically offered by banks and come with interest and possibly fees, which are charged on the overdrawn amount. The facility can be a useful tool for businesses to ensure they have access to additional funds when needed, but it should be managed carefully to avoid high costs.
Pros & Cons of a Business Overdraft
Pros
- Flexible Access: Helps bridge short-term gaps or cover unexpected expenses.
- Quick and Convenient: Instant access to funds for unforeseen circumstances.
- Interest on Used Amounts: Cost savings as interest applies only to funds used.
- Cashflow Management: Acts as a safety net for managing fluctuations.
Cons
- Variable Interest Rates: Rates may fluctuate, affecting cash flow.
- Limited Borrowing: Amounts are typically restricted.
- Repayment Terms: Repayable on demand, potentially disrupting operations.
- Risk of Over-reliance: Potential for dependency and debt cycle.
How Do You Qualify for a Business Overdraft?
To qualify for a business overdraft, a company must typically meet certain criteria set by the bank or financial institution. These criteria may include:
- Business Performance: Demonstrating a solid track record of revenue and profitability can help in securing an overdraft facility.
- Credit Score: A good credit score is often required, as it indicates the business’s ability to repay debt.
- Banking History: A positive banking history with the institution can support the application for an overdraft.
- Financial Statements: Provision of up-to-date financial statements, including balance sheets and cash flow statements, to show the financial health of the business.
- Business Plan: Sometimes, a clear and viable business plan may be required to show how the overdraft will be used and repaid.
The specific requirements can vary between banks and depend on the amount of overdraft being applied for. It’s important for businesses to discuss directly with their bank to understand the eligibility criteria and application process.
Can a New Business Get an Overdraft?
Yes, a new business can obtain an overdraft, but it may be more challenging compared to established businesses due to a lack of financial history and proven profitability. Banks and financial institutions typically assess risk before offering credit facilities, and a new business represents a higher risk due to its unproven track record.
However, it’s not impossible. Here are a few factors that can improve the chances of a new business securing an overdraft:
- Strong Business Plan: Presenting a robust and realistic business plan that demonstrates potential profitability and how the overdraft will be used and repaid.
- Personal Credit: For new businesses without a business credit history, the personal credit scores of the owners can be crucial.
- Security: Offering collateral or a personal guarantee might persuade a bank to approve an overdraft.
- Banking Relationship: Starting a banking relationship with deposits and demonstrating responsible financial management can help.
- Financial Projections: Providing detailed financial projections showing expected cash flow and revenue.
It’s advisable for new business owners to discuss their needs with their bank to explore the available options and understand the terms and requirements of an overdraft facility.
Can You Get a Business Overdraft with Bad Credit?
Obtaining a business overdraft with bad credit is challenging but not impossible. Banks and financial institutions consider credit history as a key factor in assessing the risk of lending. A poor credit score can indicate a higher risk of default, making lenders more cautious.
However, there are ways to improve the chances of securing an overdraft even with a less-than-ideal credit score:
- Provide Collateral: Offering assets as security can mitigate the lender’s risk and may make them more willing to offer an overdraft.
- Personal Guarantees: Business owners with bad credit might be considered for an overdraft if they can provide a personal guarantee from someone with a better credit standing.
- Demonstrate Improved Financial Management: Showing evidence of improved financial management and stability in recent times can help.
- Specialist Lenders: Some financial institutions specialize in lending to businesses with bad credit, though the terms might be less favourable.
- Build a Relationship with the Lender: Establishing a good banking relationship and demonstrating your business’s potential and your commitment to repaying the borrowed amount can support your application.
It’s important to carefully review the terms and conditions of any credit facility, especially those available to businesses with bad credit, as they may come with higher interest rates or more stringent conditions. Consulting with a financial advisor to explore the best options for your specific situation is also advisable.
How to Qualify for a Business Overdraft as a Sole Trader
When a sole trader seeks to qualify for a business overdraft, the process differs from that of a limited company mainly due to the nature of business ownership and the assessment of financial risk. Key differences include:
- Personal Credit Score: For sole traders, the personal credit score is directly relevant to the application, as there’s no legal distinction between personal and business finances.
- Proof of Income: Sole traders must often provide personal bank statements or tax returns as proof of income, showcasing the business’s financial health through their personal finances.
- Collateral: The option to offer personal assets as collateral for the overdraft may be more prevalent for sole traders.
- Business Plan and Financial Projections: While important for all businesses, for sole traders, demonstrating the personal commitment to the business’s success and its financial viability through a detailed business plan and financial projections can be particularly crucial.
How Much Do Business Overdrafts Cost?
Business overdrafts entail various expenses that can affect overall affordability for businesses. Here’s a breakdown:
- Arrangement Fees: Banks typically charge a fixed fee or a percentage of the agreed overdraft limit to set up the facility. For instance, fees may start from £25 or be 1.5% of the overdraft limit.
- Interest Charges: Interest rates on overdrafts vary, often ranging from around 10% to 15% of the borrowed amount. These rates apply to the outstanding balance of the overdraft and constitute a significant portion of the overall cost.
- Adjustment Fees: Businesses may incur one-time charges for modifying the overdraft limit to meet changing financial needs.
- Renewal Costs: When the agreed borrowing period ends, renewing the overdraft facility typically involves a small fee. This fee is usually more affordable than the initial arrangement fee.
- Account Management Charges: Since a business current account is necessary to access an overdraft, account management fees should be considered. These fees can vary widely, ranging from £0 to £20 per month, on average.
Business Overdraft FAQs
Can I use a business overdraft for any purpose?
Yes, you can use the funds from a business overdraft for various purposes, including covering operational expenses, purchasing inventory, managing cash flow gaps, or seizing business opportunities.
What happens if I exceed my overdraft limit?
Exceeding your overdraft limit can result in additional fees, higher interest rates, and negative impacts on your credit score. It’s essential to manage your overdraft responsibly and communicate with your bank if you anticipate going over your limit.
Can I repay a business overdraft early?
Yes, you can typically repay a business overdraft early without penalty. Early repayment may help reduce interest charges and free up your credit line for future use. Check with your bank for specific terms and conditions regarding early repayment.
Is collateral required for a business overdraft?
Most business overdrafts are unsecured, meaning they do not require collateral. However, some banks may request a personal guarantee or collateral for larger overdraft limits or riskier borrowers.
Will applying for a business overdraft affect my credit score?
Applying for a business overdraft may result in a hard inquiry on your credit report, which can temporarily lower your credit score. However, the impact is usually minimal, and responsible use of the overdraft can help build positive credit history over time.
What is the difference between an arranged and unarranged overdraft?
An arranged overdraft is agreed upon in advance between you and your bank, with predetermined terms and limits. An unarranged overdraft occurs when you exceed your account balance without prior approval, resulting in higher fees and interest charges.
Can I have multiple business overdrafts at the same time?
Yes, some businesses may have multiple overdraft facilities with different banks or financial institutions. However, it’s essential to manage each overdraft responsibly and avoid overextending your borrowing capacity.
