Business Bank Accounts with Overdraft

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

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.

Key Features of Starling’s Business Overdraft

• 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.

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.

Cashplus Bank’s Business Overdraft

The Cashplus Business Account 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 FreeAgent. You also get a Mastercard debit card, free online banking, SMS alerts, and a mobile app for managing your account.

The Cashplus 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.

Key Features of Cashplus’s Business Overdraft

• 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, i
• Account Options: Compatible with both Cashplus Business Bank Account.
• 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 3.8 stars out of 5
• Security and Confidence: As a fully regulated online bank with FSCS protection

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.

Key Features of Virgin Money’s Business Overdraft

• 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.

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.

Key Features of Metro’s Business Overdraft

• 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.

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.

Key Features of Lloyds’s Business Overdraft

• 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.

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

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