Unsecured Business Overdraft Rates & Fees Comparison
We’ll help you get the best, low-cost business overdraft option for you. It’s free to compare, with no credit score impact.
How Lend can help you with a business overdraft
Access multiple providers
We can help you compare overdraft rates from banks and smaller specialist providers.
Tailored solutions & support
Lend’s experts can find overdraft solutions for small businesses beyond what’s traditionally available from the banks. A Lend SME specialist will guide you on your options and eligibility, and manage your overdraft from application to funding.
Smart tech
We’ve built technology to make getting an overdraft faster and easier. No clunky processes or paperwork.
How does a business overdraft work?
A business overdraft is a facility that allows you to borrow funds on an ongoing basis up to an agreed limit. It’s most commonly used as a source of day-to-day capital to bridge cashflow gaps.
Traditionally a business line of credit was attached to your bank account, with the bank allowing you to draw down funds, even when the account balance was zero.
Some banks still operate their products in this way, but increasingly a business line of credit can be a standalone product, offered by a wide range of lenders who do not necessarily even offer business transaction accounts.
Here’s how the facility works...
- There’s an overdraft limit up to which a business can draw down borrowed funds.
- You then repay the overdrawn amount with interest through scheduled weekly or monthly payments.
- You only pay interest on the overdrawn amount, not the entire credit limit. If you don’t use the overdraft, you don’t pay interest.
For example, if you have an approved overdraft of $50,000 and withdraw $20,000, you only pay interest on the $20,000, not on the unused $30,000. If you repay $10,000, you pay interest only on the $10,000 that remains overdrawn.
A business overdraft can be secured or unsecured
Unsecured business overdraft
An unsecured business overdraft facility doesn't require collateral, making the application quicker, although interest rates on unsecured finance are generally higher. An unsecured overdraft is the most common option for small businesses as it allows them to access funds instantly without tying up existing assets.
Secured business overdraft
A secured overdraft is backed by collateral (security) such as residential or commercial property, vehicles or other assets. If you draw down funds and cannot repay them, the lender has a claim on the asset. This reduces the lender’s risk and means interest rates on secured overdrafts are generally lower. Most lenders will require collateral (e.g. property) for overdraft limits over $300,000.
The details: Overdraft rates, fees, terms & repayments
Business overdraft interest rates
Interest rates on a business overdraft range from 15-20% p.a., depending on the lender and whether the overdraft is secured or unsecured. Interest rates are generally variable. The interest is calculated daily on the amount withdrawn until it’s fully repaid.
Overdraft rates can vary significantly between providers. One of our experts can run you through indicative rates from various lenders. One important consideration, that is not always obvious, is that depending on how you use it the overall cost of a business overdraft is often primarily made up of fees and not always the interest charged.
Business overdraft fees
Establishment fee: Charged when the overdraft facility is set up. Typically 0.75% - 1.5% of the overdraft limit .
Line fee: Ongoing fee for keeping the overdraft open. Typically charged on the unused balance at around 1% p.a..
Service fee: A separate flat monthly fee that may apply.
Annual review fee: May be charged if the lender reviews your limit once a year
Discharge fee: You may be charged a fee when you close the account.
Business overdraft terms
Business overdraft terms typically range from 3 months to 5 years, depending on the lender and your credit terms. Some lenders may offer a temporary overdraft, allowing a business to overdraw their account for a limited period (e.g. 1 month).
On the other hand, a revolving credit facility has no set term. Regardless of the agreed term, your lender may review the facility agreement at any time should the performance of your business change.
Business overdraft repayments
Most overdraft facilities have weekly scheduled repayments for businesses with a turnover of less than $5 million. If your turnover exceeds $5 million, you may opt for weekly or monthly repayments. There may be a minimum repayment amount or an interest-only payment minimum.
Business overdraft snapshot
Overdraft limit | $25,000 - $2 million |
Interest rate range | 15-20% p.a. |
Terms available | 3 months - 5 years (or can be an open-ended arrangement) |
Annual fees | 1% - 2% of credit limit |
Who’s eligible for a business overdraft?
The standard qualifying criteria for a business overdraft include:
- Australian citizenship or permanent residency
- A valid ABN or ACN
- The minimum turnover required by your lender
- Minimum operating time of six to 12 months
- A good credit score — the minimum credit score for business lending is around 400.
As with all business finance, you must intend to use the funds predominantly for business purposes.
Pros of a business overdraft
Pros
• Only pay interest on what you use
You don’t pay any interest on the portion of the overdraft you don’t use, helping you manage costs more efficiently.
• Flexible use of funds
You can use a business overdraft for virtually any business-related expense, offering broad flexibility.
• Can be linked to your transaction account
Overdrafts can be attached directly to your business transaction account or set up as a separate facility, depending on your needs.
• Easy to cancel
You can close the overdraft facility at any time, as long as you’ve repaid the outstanding balance and any fees.
Cons
• Higher cost than a business loan
Overdrafts generally come with higher interest rates and fees than standard business loans.
• Not for long-term purchases
They’re not ideal for funding long-term investments like vehicles or equipment, as they’re designed for short-term cash flow needs.
• Fees can accumulate
Account-keeping, annual, and usage fees can add up quickly and erode the benefits of flexible access to funds.
• Facility can be withdrawn
The lender can cancel your overdraft and demand full repayment immediately if you breach the terms of the agreement.
How to get a business overdraft
1
Compare and choose a lender
You can apply for a business overdraft through either a bank or a specialist non-bank lender. Non-bank lenders tend to have simpler application processes and more flexible lending criteria.
2
Prepare your supporting documents
Lenders will request financial documents to assess your business’s cash flow and ability to repay the overdraft. Think bank statements, business registration details and tax information such as BAS statements or tax returns.
3
Provide details about your business
To assess risk, lenders will also want to know things like how long you’ve been operating, what industry you’re in and how your business is structured.
More info on business overdrafts
FAQs
According to Lend proprietary data, the median amount for an overdraft facility in Australia is $50,000. However, you can borrow between $5,000 and $2 million with a business overdraft.
Your lender will set your overdraft credit limit based on your business revenue and credit history. Keep in mind that you don’t have to take the maximum credit limit, and can apply for the amount you actually need.
Traditionally a business overdraft was always a facility linked to your business transaction account, whereas a business line of credit exists as a standalone finance product. However, nowadays the lines have become more blurred and it’s possible to get a business overdraft from non-bank providers, with the product working in much the same way as a line of credit.
A business overdraft is more suitable for businesses that need to cover cashflow shortfalls and short-term expenses. In contrast, business credit cards are commonly used for everyday expenses or big purchases to take advantage of interest-free days and earn rewards points on eligible purchases. Interest rates on business credit cards are usually higher than on unsecured and secured overdrafts.
Yes, you may still be able to get a business overdraft if your credit history isn't perfect. Non-bank lenders may be your best option as they're more lenient with their eligibility criteria. You may initially qualify for a lower overdraft limit, and your interest rate will likely be higher. You could alternatively apply for a bad credit business loan.