Business Overdraft from 7.49% p.a.

How a Business Overdraft Works

A business overdraft is a pre-approved credit facility linked to your business bank account. It allows you to go into negative on your account up to an agreed limit without needing to apply for a separate loan each time. Think of it as a financial buffer that sits behind your account, ready to be accessed whenever your cash flow dips.

Unlike a term loan where you receive a lump sum and repay it with scheduled instalments, an overdraft works on a revolving basis. You draw funds by simply making payments or withdrawals that take your account below zero. As money comes into your account (from customer payments, sales, or other income), it automatically reduces your overdraft balance.

The key advantage is that you only pay interest on the amount you are overdrawn at any given time. If your overdraft limit is $100,000 but you only use $30,000 in a particular month, you only pay interest on $30,000. If your account returns to positive, you pay no overdraft interest at all. This makes it one of the most cost-effective ways to manage variable cash flow needs.

When a Business Overdraft Makes Sense

Business overdrafts are best suited for managing timing mismatches between when you spend money and when you receive it. Common scenarios include:

• Payroll bridging: Covering wages when customer payments have not yet cleared, particularly for businesses with fortnightly or monthly billing cycles.
• Seasonal fluctuations: Businesses with seasonal revenue patterns use overdrafts to maintain operations during quieter periods.
• Supplier payments: Taking advantage of early payment discounts from suppliers when your own customers have not yet paid.
• Unexpected expenses: Having a buffer for urgent repairs, emergency stock purchases, or unforeseen business costs.
• Growth management: Bridging the gap during rapid growth when expenses increase before revenue catches up.

Secured vs Unsecured Business Overdrafts

Business overdrafts come in two main forms. Secured overdrafts are backed by property or other assets, offering higher limits (up to $500,000 or more) and lower rates from 7.49% p.a. They are ideal for established businesses with property equity that need a substantial ongoing facility.

Unsecured overdrafts do not require property security, making them accessible to a broader range of businesses. Limits are typically lower (up to $100,000 to $150,000) and rates start from 9.99% p.a. They are suited to businesses that need a smaller facility and prefer not to encumber property.

Some lenders also offer overdrafts secured by a general security agreement (GSA) over your business assets, which sits between fully secured and unsecured. This provides slightly better rates than unsecured without requiring specific property security.

Business Overdraft vs Line of Credit

Business overdrafts and lines of credit are similar products, and the terms are sometimes used interchangeably. However, there are practical differences. An overdraft is typically attached to your everyday business transaction account, so funds are accessed automatically as you transact. A line of credit is usually a separate facility where you actively draw down funds via transfer.

Overdrafts tend to be more convenient for day-to-day cash management because they integrate directly with your banking. Lines of credit may offer more flexibility in terms of repayment structures and can sometimes be used for larger, more defined purposes. Both products charge interest only on the amount used.

Our brokers can help you determine which product structure is best suited to your business operations and cash flow patterns. In many cases, the right answer depends on which lender and product offer the best overall terms for your specific situation.