Business overdraft: how it works and what it costs

What is a business overdraft?

A revolving credit limit attached to your business transaction account. NAB publishes its overdraft as linked to a business transaction account; ANZ publishes it as a revolving facility with no set repayments, and Suncorp as variable with no set term and interest charged on the used portion.

When the account goes below zero you are borrowing; when receipts come in the balance climbs back and the interest stops. That makes it the right tool for timing gaps, such as paying wages and suppliers before customers pay, buying seasonal stock, or covering a quarterly BAS.

It is the wrong tool for buying an asset or funding a permanent expansion, where a term loan at a lower fixed rate and no line fee costs less. business.gov.au makes the same point: an overdraft can bridge short-term cash flow gaps, but should not be relied on for capital purchases or long-term financing.

What do the banks and fintechs publish?

Checked against each lender's published overdraft page on 20 September 2026, with Westpac, CommBank and Shift re-checked on 30 September 2026; "Not published" means the page does not state it.

What does a business overdraft cost?

Two charges, and for a lightly used facility the second is the bigger one.

Interest on the overdrawn balance

Interest accrues daily at a variable rate: a base rate plus a margin that depends on the type of security. Westpac publishes starting rates from 8.11% p.a., CommBank from 8.75% p.a. secured and 14.80% p.a. unsecured, and NAB a business overdraft prime rate to which a customer margin is added. The business loan interest rates guide explains that structure.

The line fee on the limit

Charged on the limit whether you use it or not: 0.75% p.a. at Suncorp, 1.20% p.a. at Westpac, 1.70% p.a. at CommBank, and at ANZ on the total limit. On a $100,000 limit that is $750 to $1,700 a year before any interest. Add the establishment fee or, at the fintechs, an annual fee ($495 or $795 at Shift).

What is a good overdraft limit?

One sized to your largest realistic cash flow gap. Map the month or season where money goes out before it comes in, such as wages and supplier bills ahead of customer payments or a quarterly BAS, take the deepest point, and add a buffer. A bigger limit than that mostly buys a bigger line fee: at 1.20% p.a., every extra $50,000 of limit costs about $600 a year unused. Review the limit each year as the business changes.

Overdraft, line of credit or term loan?

When is an overdraft the wrong choice?

When the balance never returns to zero. A facility that is permanently $80,000 overdrawn is paying a variable overdraft margin plus a line fee on a debt that behaves like a term loan, and it is repayable on demand, so a limit review at the wrong moment can force a scramble.

Convert a hard-core overdraft balance into a term loan at a lower rate and keep a smaller overdraft for genuine swings. If the pressure is unpaid invoices rather than seasonality, invoice finance funds the receivables directly; if it is an ATO balance, a tax debt loan clears it on a schedule.

Who qualifies, and what does the bank want to see?

A trading history, usually 12 months or more (CommBank's page carries a specific note for businesses trading under that), a business transaction account with the bank for the overdraft to attach to, recent BAS and financials, and for larger or secured limits, property or other security and directors' guarantees.

Limits above the unsecured ceilings ($250,000 at CommBank) need security, and BOQ publishes residential security at up to 80% LVR or non-residential security as the basis for its facility. A broker compares the bank overdrafts against a fintech line of credit assessed on live bank feeds, and prices the line fee against the interest saving on a secured limit.