What is a business overdraft?

A business overdraft (also known as a revolving credit facility) is a lending facility accessed through your business bank account. It’s an agreement with your bank that means your balance can dip below zero up to a certain limit, smoothing out any cash flow spikes should you need it.

Generally speaking, banks tend to charge an annual fee for having access to a business overdraft, and you will usually have to pay interest on anything that you borrow whilst in the red. Also, unlike a consumer overdraft, the amount you’re able to borrow – known as your limit – can vary hugely. Anywhere between the region of £1,000 up to hundreds of thousands of pounds.

How do I get a business overdraft?

A business can apply for a business overdraft with their current business bank account provider. However, they’re becoming harder to get. Banks have shown themselves to be increasingly reluctant to approve finance for SME businesses. The number of UK businesses has grown by 25% since 2011, yet overdraft lending to SMEs has fallen by 40%.

Furthermore, a recent report by The Times shows how difficult it is to simply get applications for bank finance off the ground. The UK has lost nearly two thirds of its local banking services in the last 30 years, meaning when negotiating a potential overdraft, SMEs are often left to deal with someone at a call centre that has no knowledge of the local area.

How much does a business overdraft cost?

A bank will charge interest on a business overdraft. Overdraft rates are often linked to the Bank of England’s base rate, and there may also be a fee charged based on your facility limit.

Business overdraft limits are pre-arranged in advance, and will usually be agreed for a 12 month term, using factors such as monthly turnover to determine the appropriate amount. Extending an overdraft will sometimes come with an arrangement fee.

Is there an alternative to a bank overdraft?

A survey recently conducted by Growth Street of 2,001 businesses has shown that 51% are now considering using an alternative to the banks to secure business funding. Banks still retain a strong share of the market: the HSBC business overdraft has 11% of the market, Barclays 15%, Lloyds 20% and RBS the most with 30%.

However, alternatives to the overdraft, such as GrowthLine, are becoming more popular.

What’s the difference between a GrowthLine and a business overdraft?

At Growth Street, we’re transforming the business overdraft. It works very similarly: you can drawdown and make repayments whenever you like, helping businesses to stay on top of their cash flow. However, by leveraging technologies such as Open Banking and cloud accounting, we’re able to make decisions incredibly quickly. You can make an application online in minutes and we’ll get back to you within 1-3 days.

Also, we have business development managers across the UK, from Glasgow to Stockport, Cardiff to London (and plenty more!), meaning you know you’ll be dealing with someone who understands your local business community.

To find out more about how we’re transforming the overdraft, speak to one of the team at 0808 123 1231 or visit growthstreet.co.uk/growthline.

Written on in Borrowing