You probably hold an overdraft because it’s convenient. It sits alongside your current account, it covers you the moment the balance dips below zero, and once it’s arranged it asks nothing of you.
For the odd quiet week, that’s exactly what you want. The trouble starts when the overdraft stops being an occasional buffer and becomes the thing that gets you to the end of every month. What should replace it depends on why the money is short and for how long, and one point is worth making before you read any further: the replacement is usually not cheaper. On the figures we worked out below, an arranged overdraft from a high-street bank is the cheapest borrowing on this page. What it is not is certain.
Best Overdraft Alternatives at a Glance
Match the reason your account goes short to the structure built for it and the shortlist usually comes down to one or two options rather than eight. We have put the eight situations we see most often against the product that fits each one, with the thing that most often catches people out alongside it.
| Your situation | Option to consider | Why it fits | Main watch-out |
|---|---|---|---|
| A small gap, a few times a year | Keep the overdraft | Cheapest published borrowing here, and instant once arranged | Repayable on demand, plus an arrangement fee and often an annual renewal fee |
| Short every month, no single cause | Revolving credit or a line of credit | Draw, repay and redraw without reapplying, paying interest only on the drawn balance | Fees, guarantees and covenants vary; check the redraw and cancellation terms |
| Cash tied up in unpaid B2B invoices | Invoice finance | Funding follows your sales ledger, so the facility grows as you grow | Two charges running at once, and one to four weeks to set up from scratch |
| A one-off cost you can name and date | Short-term or term loan | Fixed schedule, so you know the total before you sign | Repaying in instalments means you hold roughly half the money on average |
| Equipment or a vehicle | Asset finance | The asset secures the borrowing, so the rate reflects that | Fixed payments whether or not the asset earns, and the lender holds title |
| Card-payable spend you can clear in full | Business credit card | Up to about six weeks interest free if you clear the statement on time | Miss the window and the rate is the highest here; cash withdrawals never qualify |
| Card takings that swing hard by season | Merchant cash advance | Repayment moves with your takings, so a quiet month costs you less | The cost is fixed at drawdown and doesn’t fall if you repay quickly |
| A confirmed order or an import to pay for | Trade finance | Funds the transaction rather than the account balance | Specialist eligibility, and useless for general cash timing |
Ordered by how often each situation comes up, not by cost. The pound costs behind these choices are in the cost model below.
Why Businesses Look Beyond the Overdraft
The demand clause is the real reason, and it matters far more than the rate. An arranged business overdraft is repayable on demand, and the banks say so themselves: Metro Bank’s overdraft page reserves “the right to withdraw or reduce an overdraft at any time”, and HMRC’s Corporate Finance Manual treats every overdraft facility the same way. The clause sits quietly for years while trading is comfortable. It gets used in the month your figures wobble, which is the month you need the facility most.
The rate is a smaller problem than this page used to claim. We checked four published business overdraft rates on 17 August 2026 and they came in between 10.20% and 15.62% EAR on facilities up to £25,000: 10.20% at the Co-operative Bank, 13.0% at Virgin Money, 14.13% at Metro Bank and 15.62% at Lloyds. Arrangement fees of 1.5% to 2.5% of the limit sit on top, and Metro adds a 1.25% renewal charge every year, so the true cost runs above the headline. It’s still nowhere near the 15% to 30% range this page carried until today.
Arranged and unarranged borrowing are two different products. Go overdrawn without agreeing it first and the pricing changes character completely: the Co-operative Bank charges 25.59% EAR unarranged against 10.20% arranged, and Lloyds adds 10.85% over Bank Rate plus £12 a month. Unarranged borrowing is genuinely punishing, and worth every warning it gets. Arranged borrowing, at these four banks, isn’t.
The old range on this page blended the two, and that flattered every alternative below it.
What has genuinely changed is availability. Allica Bank’s research puts SME overdraft provision at £2.7bn in 2024 against £18bn in 2000 once you adjust for inflation, a fall of more than 80%, with overdrafts down from 31% of SME bank lending in 1998 to 5% in 2024. That’s a lender’s own research rather than an official series, so read it as Allica’s figure. It matches what businesses report anyway: limits get reviewed downward, and renewals get harder to win.
You gain most from moving if you run near the limit every month, if you use the facility to cover payroll or a supplier run, or if the bank has already told you the limit is coming down. If you dip in twice a year for a fortnight, leave it alone. On the numbers below you would be paying a good deal more for the privilege of switching.
What Does £20,000 Actually Cost?
Holding £20,000 for a year costs £2,040 on the cheapest arranged overdraft we found and £8,103 at iwoca’s own representative rate, four times as much for the same money. Getting to those numbers is harder than it should be, because every provider answers the price question in a different currency.
An overdraft quotes EAR. iwoca quotes a rate per 30 days. Funding Circle charges a flat fee per transaction and no interest at all. Invoice finance quotes a percentage of your turnover plus a charge over Bank Rate. A merchant cash advance quotes a factor rate, which isn’t a rate at all. None of them can be compared as published, which is why so much of the advice on this subject stops at “it depends”.
So we worked it out. Same business, same £20,000, drawn in full on day one and held for the whole period. Every figure below is the cost of the borrowing in pounds, calculated from each provider’s own published pricing on 17 August 2026. Set-up fees are listed separately underneath, because they distort a 30-day scenario far more than a 12-month one.
| Product and example | 30 days | 90 days | 180 days | 12 months | How it is priced |
|---|---|---|---|---|---|
| Arranged overdraft Co-operative Bank, 10.20% EAR | £160 | £485 | £981 | £2,040 | Interest on the drawn balance |
| Arranged overdraft Lloyds, 15.62% EAR | £240 | £729 | £1,484 | £3,124 | Interest on the drawn balance |
| Invoice discounting discount charge only, Bank Rate plus 2.25% | £99 | £296 | £592 | £1,200 | Charge over Bank Rate on what you draw, plus a service fee on turnover |
| Funding Circle FlexiPay published example fee bands | £0 on a card, paid in one | £798 | £1,598 | £3,198 | Flat fee per transaction, no interest |
| iwoca Flexi-Loan lowest published rate, 1.5% per 30 days | £300 | £900 | £1,800 | £3,650 | Interest per 30 days on what you draw |
| iwoca Flexi-Loan iwoca’s representative example, 3.33% per 30 days | £666 | £1,998 | £3,996 | £8,103 | Interest per 30 days on what you draw |
| Business credit card Capital on Tap, 34.96% APR representative | £0 if cleared in the interest-free window | £1,534 | £3,187 | £6,992 | Nothing for up to 42 days on purchases, then interest |
| Merchant cash advance factor rate 1.25 | £5,000 | £5,000 | £5,000 | £5,000 | Fixed at drawdown, and it doesn’t fall if you repay sooner |
| Bank revolving credit facility | Not published by any UK bank we could find | Quoted after assessment | |||
Rounded to the nearest pound. The arithmetic and the sources are set out under “How we worked these out” below.
Read down the 12-month column and the ranking isn’t the one the market implies. The cheapest borrowing on this page is the product everyone is trying to leave. A Co-operative Bank overdraft costs £2,040 to hold £20,000 for a year, while iwoca at its own representative rate costs £8,103 for the same money over the same period. You’re not paying that gap for a better price. You’re paying it because iwoca will lend to a business the bank has turned down, and because iwoca can’t ask for the money back next Tuesday. Both are worth buying. It’s worth knowing that’s what you’re buying.
The one genuine bargain here is narrow and conditional. Put spending on a business credit card, or through FlexiPay on a card, clear it inside the interest-free window, and the money costs nothing at all. Timing decides how much window you get: if you pay a supplier in the first week of the statement cycle you get close to the full 42 days, and if you pay in the last week you get a fortnight. Miss the window on £20,000 at 34.96% and six months costs you £3,187, more than double the same period on a Lloyds overdraft.
What each one charges before you borrow a penny
| Product | Set-up cost on £20,000 | Recurring |
|---|---|---|
| Co-operative Bank overdraft | £300 arrangement fee (1.5%) | Reviewed annually |
| Virgin Money overdraft | £500 establishment fee (2.5%) | Reviewed annually |
| Metro Bank overdraft | £350 arrangement fee (1.75%) | £250 renewal fee each year (1.25%) |
| Lloyds overdraft | £398 arrangement fee (1.99%) | Reviewed annually |
| iwoca Flexi-Loan | None under 12 months | A fee applies past 12 months; iwoca quotes about 5% for 13 to 24 months |
| Funding Circle FlexiPay | Free to set up | No annual charge |
| Capital on Tap card | None | £0 a year on the free plan |
| Invoice discounting | Underwriting, one to four weeks | Service fee of 0.2% to 0.5% of the turnover you finance, every cycle |
| Merchant cash advance | Built into the factor rate | None |
How we worked these out
The scenario is deliberately simple, because the point is comparability rather than precision. We assume £20,000 drawn in full on day one, held for the stated period and repaid in a single payment at the end, except where the product does not allow that. Bank Rate is 3.75%, checked against the Bank of England on 17 August 2026.
For the overdrafts, EAR is an annual rate that already accounts for compounding, so we converted it to the cost for each period rather than dividing by twelve. For iwoca we applied the published rate per 30 days to the drawn balance. For invoice discounting we used Bank Rate plus 2.25%, the midpoint of the 1.5% to 3% range Novuna publishes, charged day by day on the drawn balance. For the credit card we applied the representative APR from the point the interest-free window closes. For the merchant cash advance we multiplied the advance by the factor rate.
Three things these figures do not tell you. FlexiPay and a merchant cash advance both repay in instalments rather than in one payment, so you do not have the use of the whole £20,000 for the whole term. On a 12-month FlexiPay plan the average balance is nearer £10,000, which makes the real cost of the money you held higher than the row suggests. Invoice discounting charges its service fee on every pound of turnover you put through, so financing the same ledger repeatedly across a year costs several times the single-cycle fee. And the iwoca and Capital on Tap figures are representative rates, meaning the rate offered to at least 51% of accepted applicants, not the rate you will necessarily be given.
Sources. Co-operative Bank, Virgin Money, Metro Bank and Lloyds business overdraft pages; iwoca Flexi-Loan pricing and support material; Funding Circle FlexiPay; Capital on Tap; Novuna invoice discounting guidance; Capify merchant cash advance guidance; Bank of England Bank Rate. Checked: 17 August 2026. Type: provider pricing, converted to a common scenario by BusinessExpert. Provider pricing changes without notice, and a representative rate is not an offer.
Revolving Credit Facilities
Revolving credit is the closest structural match to an overdraft, and on price we can’t tell you what it costs. You draw what you need, repay it and draw again inside an agreed limit without a fresh application, paying interest only on the drawn balance. Unlike an overdraft it normally runs for a committed term, which is rather the point: the facility is not repayable at the lender’s convenience.
We couldn’t find a single UK bank publishing a rate for a business revolving credit facility. Pricing is quoted after assessment, and it moves with your turnover, your filed accounts, the security on offer and how long you have banked with them. That’s why this page no longer carries a rate range. The 6% to 12% and 12% to 25% bands that sat here were not traceable to any source, and telling you the number isn’t published is more useful than dressing up a guess as market data.
What you can check before you apply is the shape of the deal, which is where the difference between facilities actually lives. Ask what the arrangement fee is, whether a commitment or non-utilisation fee applies to the undrawn part, what happens at renewal, whether a personal guarantee is required, and what events let the lender cancel the facility or refuse a redraw.
That last question is the one that counts at month-end, when your cash flow is at its lowest and the facility is doing the most work. A facility described as committed can still be pulled if you breach a covenant, so read the covenants before you treat the commitment as absolute.
Our full guide covers the mechanics, the fee structures and the covenant traps in detail at revolving credit facilities. If you’re choosing between the two structures specifically, revolving credit vs overdraft sets them side by side.
Business Lines of Credit and Flexible Loans
iwoca lends. Tide doesn’t. That distinction is the most important thing in this section, and this page previously blurred it by saying the two would write you a line of credit. They do quite different jobs, and it changes who you’re actually contracting with.
iwoca’s Flexi-Loan is a credit facility from iwoca’s own book, on limits from £1,000 to £1,000,000 and terms from a day to five years. Interest is charged per 30 days on what you draw, there is no arrangement fee under 12 months, and repaying early costs nothing. Funding Options by Tide is a comparison service holding credit-broking permissions rather than lending permissions. It matches you against a panel of lenders, 80-plus by its own count, and somebody else writes the facility you end up with.
Neither model is worse than the other. You just need to know which one you’re dealing with when a decision comes back, because it changes who sets your rate and who you chase when something goes wrong.
Speed is the real reason this route exists. If you pay a supplier run on the 25th and your customers settle on the 5th, you need money available on a schedule the bank’s annual review cycle knows nothing about, and specialist lenders decide in a day or two on cash-flow data rather than filed accounts. That’s what makes this route work for a business that has outgrown its overdraft but can’t yet reach a bank facility.
On eligibility, this page used to state that iwoca starts at six months’ trading. We checked iwoca’s own pages and they don’t agree with each other, which is exactly why that should never have been written as a rule for the whole lender. Its support material says a start-up with no trading history can be considered, with the maximum capped at £10,000 for that group, while its short-term and cash-flow loan pages do give six months as a basic criterion. Check the criterion on the product page you’re applying through rather than the brand as a whole.
A director’s personal guarantee is required on the Flexi-Loan, and iwoca states that plainly. Our business lines of credit guide compares the specialist lenders in this space.
Invoice Finance
Look here when the hole in your account is really a hole in your customers’ payment terms. Invoice finance advances a percentage of what you’re owed, so the facility grows with your sales instead of sitting at whatever limit the bank agreed two years ago. It only works for business-to-business invoicing with creditworthy customers. Retail takings and stage-billed project work don’t fit it.
Three products sit under the name and we compared them separately, because they’re not priced or run alike. With invoice discounting you keep your own credit control and your customers need never know the facility exists. With factoring the provider takes over collections, which costs more and is visible to your customers, but takes the chasing off your desk. Selective invoice finance lets you fund individual invoices as you choose rather than committing the whole ledger, and it prices accordingly.
Discounting is the cheapest of the three. Pick factoring anyway if chasing payment is already eating your week.
Cost is two meters running at once, which is where the single figure on this page used to go wrong. Novuna’s published guidance puts the service fee at 0.2% to 0.5% of the turnover you put through, with a separate discount charge of roughly 1.5% to 3% over base rate on the money you actually draw. The service fee scales with your sales rather than with how long you borrow, so a business financing the same ledger every 60 days pays it six times a year. Advance rates run up to about 90% of invoice value.
Speed needs splitting the same way. Novuna says funds land within 24 hours of issuing an invoice once the facility is live, and that most facilities go live within 24 to 72 hours of underwriting, but that setting up a new facility usually takes one to four weeks. The fast number is the repeat draw. The slow number is the one that matters if your overdraft is being withdrawn at the end of the month. Full mechanics, fee structures and provider comparisons are in our dedicated invoice finance guide.
Business Credit Cards and Supplier Payment Facilities
For one specific job a business credit card is the cheapest money on this page: spending you can put on a card and clear in full before the interest-free window closes. Capital on Tap gives up to 42 days on purchases, with no annual fee on its free plan and limits up to £250,000. Clear the statement in full and on time and that spending costs you nothing at all.
Miss it and the product changes character. Capital on Tap’s representative rate is 34.96% APR, the highest published figure on this page, and on £20,000 held for six months that comes to £3,187 against £1,484 on a Lloyds overdraft. A card is a payment tool that happens to offer short credit. It isn’t a working capital facility, and it punishes you for treating it as one.
Two conditions rule it out more often than businesses expect. Cash withdrawals get no interest-free period, and usually attract a fee from the moment you take the money, so a card can’t cover your payroll run or your VAT bill. The spending also has to be card-payable in the first place, which excludes a good many of the supplier invoices that push businesses into an overdraft.
What you’re offered tracks your turnover and your credit file, so treat the headline limit as a ceiling rather than an expectation.
Funding Circle’s FlexiPay sits between the two. It charges no interest at all, just a flat fee per transaction from 1.99%, and paying in a single instalment by card is fee-free. Spread the same transaction over three months and the published example fee is around 3.99%; over twelve months it’s around 15.99%. On £20,000 that’s the difference between nothing and £3,198, decided entirely by how long you take to clear it. If a card genuinely fits the job, you can apply to Capital on Tap direct.
Short-Term Business Loans
Take a loan when you can name the number and the date. A one-off equipment repair, your VAT bill when you already know the figure, a stock buy for a known season: these are defined costs with a defined payback, and a fixed schedule tells you the total before you sign. That certainty is worth something a revolving facility can’t give you.
The trap when comparing a loan against a facility is the repayment pattern. A loan repaying in equal instalments leaves you holding roughly half the borrowed amount on average across the term, so a headline rate that looks similar to a revolving facility is usually dearer per pound you actually had the use of. Compare the total cost in pounds against the money you genuinely need available, not the two rates. Our business loans comparison covers the current lenders and what they charge.
Merchant Cash Advances
A merchant cash advance is the most expensive money on this page, and for one kind of business it’s still the right call. It hands you a lump sum against future card sales and takes repayment as a slice of your daily takings, commonly around 10%, so a quiet January repays less and a busy December repays more with no fixed monthly payment to miss. If your takings swing hard by season, that’s a genuine benefit, and nothing else here offers it.
You pay heavily for it. The price is a factor rate, and a factor rate isn’t an interest rate. Capify’s published guidance puts its rates at roughly 1.2 to 1.5, so a £20,000 advance at 1.25 means repaying £25,000. That £5,000 is fixed the moment the money lands. It doesn’t shrink if takings are strong and you clear the advance in four months instead of ten, which is the opposite of how every other product on this page behaves.
Repay it in four months and you pay £5,000. Repay it in ten and you pay £5,000. The slice comes off your takings every day the business trades, ahead of your suppliers and your wages.
That’s also why this page no longer carries an effective APR of 25% to 70%. Annualising a cost requires knowing the term, and a merchant cash advance has no fixed term by design, so the figure that used to sit here had to invent one. We rate the total repayment the honest number, because it’s knowable and fixed, and you can judge it against four months or ten yourself.
Eligibility is the other half of the picture. Capify looks for around £20,000 a month in card takings and 12 months of trading, and wants a personal guarantee from the majority owner. Adverse credit is often accepted where a bank would refuse, which is the real reason businesses end up here. Our merchant cash advance guide compares the UK providers and their factor rates.
Asset Finance
If you pay for a van out of your overdraft, you’re funding a five-year asset with money the bank can ask for back next month. Asset finance spreads the cost of equipment or a vehicle over its working life, secured on the asset itself, which usually means a lower rate than unsecured borrowing and no claim on your general cash position. Hire purchase leaves you owning the asset at the end; leasing doesn’t.
The trade-offs are fixed payments whether or not the asset is bringing in work, and a lender holding title until you have paid. It’s a poor fit for anything that isn’t a durable asset, and it won’t smooth a general cash-flow gap. Our asset finance guide covers the structures and the current providers.
Trade Finance
Trade finance funds a transaction, not a balance, and that’s the whole distinction. It covers a confirmed order, an import you have to pay for before the goods arrive, or a supplier demanding payment up front. If you pay a supplier 90 to 120 days before the stock sells, a letter of credit or an import facility fits a shape an overdraft never did.
Used for general cash smoothing it’s the wrong instrument, and lenders will tell you so, because the facility is tied to specific documents and specific goods. We rate it essential for cross-border trading and irrelevant for a simple timing gap. See our trade finance guide for the instruments and how they’re priced.
What If Your Bank Refuses, Reduces or Withdraws Your Overdraft?
You have a right that most businesses never use. If a designated bank turns you down for finance, it has to offer to pass your details to a designated finance platform. The obligation has been in place since 1 November 2016 under the Bank Referral Scheme, and the three designated platforms are Funding Options, Funding Xchange and Alternative Business Funding. The referral isn’t automatic: you have to agree to it, which is precisely why so many declined applications go nowhere at all.
Before you get that far, work through these in order.
- Establish what has actually happened. Refused, reduced and withdrawn are three different positions with three different timescales. Get it in writing.
- Find the date the money is due back. A withdrawn overdraft has a repayment date, and everything else depends on it.
- Size the real gap. Not the limit you had, the amount you actually use at the low point of your month. Replacing a £50,000 limit you only dip £18,000 into is an expensive mistake.
- Name the money that repays it. If the answer is next year’s trading, you’re refinancing a loss rather than a timing gap, and more borrowing will not fix it.
- Ask the bank about the referral. If it’s a designated bank and it has declined you, that offer is owed to you.
- Compare replacements on total cost, certainty and security, using the cost model above rather than the headline rates.
- Get restructuring advice if no refinance is credible. Taking a merchant cash advance to repay a withdrawn overdraft, with a personal guarantee attached, is how a business problem becomes a personal one.
If your trading history is thin or your credit file is marked, the specialist lenders on this page are far more likely to help than a bank, and they will charge you for it. That’s the honest trade, and it’s better made deliberately than under a deadline. If you would rather keep an overdraft and move the account, our comparison of business accounts with overdrafts shows which banks still lend.
How to Choose the Right Overdraft Alternative
Start with the shape of the gap, not the product. A recurring gap with no single cause points to a revolving facility or a line of credit. A gap caused by slow B2B payment points to invoice finance, because that treats the cause rather than the symptom. A known one-off cost points to a loan, an asset purchase to asset finance, and card-linked seasonal swings to a merchant cash advance if you can stomach the price.
Then price it properly, which means eight questions rather than one. What is the total cost in pounds for the way you’ll actually use it? What fees sit outside the rate? What happens if the balance stays out three months longer than planned? Can the lender cancel the facility or refuse a redraw, and on what trigger? Is a personal guarantee required? What security is taken? How long to first funding, and how long to the second draw after that? We find most owners overpay by reaching for whatever their bank offers rather than the product built for the gap they actually have.
One comparison is worth doing before any of the others. Work out what your current overdraft costs you over a year at the balance you genuinely run, then put the alternative next to it. If the alternative is dearer, and it usually will be, you need to be able to say what the extra buys: a facility the bank can’t withdraw, a lender who will actually say yes, or funding that grows with your sales.
If it buys none of those three, stay where you are.
Personal Guarantees and Regulatory Protection
About 99% of small businesses can complain to the Financial Ombudsman Service even though most business lending is unregulated, and a personal guarantee is common rather than automatic. This page used to tell you the opposite on both counts, and the Ombudsman error was the serious one, because it could have cost you a complaint you were entitled to make. Four separate questions were being run together.
Is the lending regulated?
Usually not. The FCA states that lending to limited companies, limited liability partnerships and partnerships of more than three people sits outside its remit, and that lending over £25,000 for business purposes is also out of scope. A sole trader borrowing £15,000 may be covered where a limited company borrowing the same amount isn’t. This affects which conduct rules the lender has to follow, not whether the debt is enforceable.
Will you need a personal guarantee?
It varies by lender, product, facility size and what other security is on the table, and there is no shortcut past asking. The FCA’s follow-up work on the FSB super-complaint puts it carefully: personal guarantees are more common in unregulated business lending, particularly lending to limited companies. More common is not the same as required.
In practice the named lenders on this page split three ways. iwoca requires a director’s guarantee on the Flexi-Loan and says so. Capify wants one from the majority owner. The high-street banks vary by facility size, with the Co-operative Bank saying it usually asks above £10,000. Get the answer in writing before you apply, because this is the clause that turns a business debt into a claim on your house.
Can you complain to the Ombudsman?
Very probably, and this is the part that surprises people. The FCA puts it at about 99% of small businesses being eligible to bring a complaint to the Financial Ombudsman Service. Whether you can complain is a separate question from whether the lending was regulated, and the two get run together constantly. If a lender pulled your overdraft without proper notice, or handled your application badly, don’t assume the door is shut because the borrowing was commercial.
Is deposit protection relevant?
Not to borrowing. FSCS deposit protection covers money you hold with a bank, up to £120,000 per eligible depositor per authorised firm. It has nothing to do with a credit facility. It matters here only when you’re choosing where to keep a balance, not where to borrow one.
Overdraft Alternatives FAQs
What is the cheapest alternative to a business overdraft?
On our £20,000 model, nothing beat the arranged overdraft itself: £2,040 over a year at the Co-operative Bank’s 10.20% EAR, against £3,650 at iwoca’s lowest published rate and £8,103 at its representative one. The genuine exception is spending you can put on a business credit card and clear inside the interest-free window, which costs nothing. If you are waiting on B2B invoices, the discount charge on invoice discounting came out lowest of the true alternatives at roughly £1,200 a year, with the service fee on turnover sitting on top of that.
Can I get an overdraft alternative with thin trading history or bad credit?
Often, yes, and you will pay for it. iwoca says a start-up with no trading history can be considered, with the limit capped at £10,000 for that group, and it lends on cash-flow data rather than filed accounts. Merchant cash advance providers such as Capify accept adverse credit where a bank would refuse, though they want around £20,000 a month in card takings and 12 months of trading. Expect a personal guarantee in both cases.
How quickly can an overdraft alternative be arranged?
Specialist lines and merchant cash advances can fund inside 24 to 48 hours using Open Banking data. Invoice finance is the one to plan ahead for: Novuna says a live facility releases funds within 24 hours of an invoice, but that setting up a new facility usually takes one to four weeks. Bank facilities are slower again. If your overdraft is being withdrawn on a date, work backwards from that date.
Will an overdraft alternative need a personal guarantee?
It varies by lender, product and facility size, so ask rather than assume. The FCA says personal guarantees are more common in unregulated business lending, particularly to limited companies, but they are not universal. iwoca requires one on the Flexi-Loan. Capify wants one from the majority owner. The high-street banks vary, with the Co-operative Bank saying it usually asks on overdrafts above £10,000. Get the answer in writing before you apply.
Is a revolving credit facility really better than an overdraft?
Better on certainty, not on price. A revolving facility normally runs for a committed term, so it is not repayable at the lender’s convenience the way an overdraft is, and that certainty is the product. No UK bank publishes revolving credit pricing, so we cannot tell you what the premium is. Ask what events still let the lender cancel the facility or refuse a redraw before you treat committed as absolute.
What should I do if my bank refuses my business an overdraft?
Ask about the referral first. Designated banks have had to offer declined small businesses a referral to a designated finance platform since 1 November 2016, and the three platforms are Funding Options, Funding Xchange and Alternative Business Funding. You have to agree to it for anything to happen. Then size the gap you actually use rather than the limit you had, work out what repays it, and compare replacements on total cost rather than headline rate.
Methodology and Sources
How we compared overdraft alternatives
Scope. We compared the main alternatives to a business overdraft on total cost in pounds, pricing basis, speed to funding, eligibility, security and what each lender can do to the facility once it is running. Figures come from each provider’s own published pricing and from official sources, not from aggregator marketing or market averages.
The cost model. The £20,000 comparison is our own calculation, not a set of provider quotes. It converts products that publish EAR, a rate per 30 days, a flat transaction fee, a percentage of turnover and a factor rate into one scenario so they can be read side by side. Because those charging structures are genuinely different, no single APR or EAR figure is valid across all of them, and we have not produced one.
Sources and dates. Provider pricing was checked on 17 August 2026 against the Co-operative Bank, Virgin Money, Metro Bank and Lloyds overdraft pages, iwoca’s Flexi-Loan pricing and support material, Funding Circle FlexiPay, Capital on Tap, Novuna’s invoice discounting guidance and Capify’s merchant cash advance guidance. Regulatory points come from the FCA’s follow-up work on the FSB super-complaint on personal guarantees, and procedural points from the British Business Bank on the Bank Referral Scheme. Bank Rate was 3.75% on 17 August 2026. The fall in overdraft lending is Allica Bank’s own research, inflation adjusted, and is labelled as such wherever it appears.
Update cadence. We re-check these figures when Bank Rate moves or a provider changes its published pricing. A representative rate is the rate offered to at least 51% of accepted applicants and is not an offer to you. Provider names in the cost and fee tables link to the exact page each figure was taken from, so you can check any number yourself. Some links elsewhere on this page are affiliate links, which never affect which products we include or what we say about them; see our editorial policy.
Regulatory note. This page is editorial content, not regulated financial advice, and BusinessExpert is not authorised or regulated by the FCA. Much lending to limited companies sits outside the FCA’s remit, but that is a separate question from whether you can complain to the Financial Ombudsman Service, which about 99% of small businesses can. Compare offers directly with providers before you apply.