Business overdraft: how to get one, what it costs, and what replaces it

Updated 26 September 2026

A business overdraft is a line of credit on your business current account, arranged with the bank that holds the account. It charges interest only on the amount you are overdrawn, the bank usually charges for setting it up and for renewing it each year, and it can ask for the money back at any time. We do not arrange bank overdrafts; the bank does that with its own customer. What we arrange is the finance that replaces one when the limit is reduced or withdrawn, which is the rest of this page.

When a business overdraft is reduced or comes to an end, the closest like-for-like replacement is a revolving credit facility or flexi-loan: approved once, drawn when needed, repaid and drawn again. Which alternative fits depends on what the overdraft was doing, whether that was absorbing a few days of timing each month, bridging late-paid invoices, or quietly funding growth.

The five products that cover almost every replacement case are compared below, with the lenders on our panel that write each one and the sizes they publish.

How a business overdraft works, and how to get one

The British Business Bank's guidance describes the product plainly. An overdraft is arranged with your bank, online, by phone or in branch, and sits on the business current account. Interest is charged at an annual rate on the overdrawn amount only, the rate varies between banks and can change at any time, and it is generally higher than the rate on a business loan, which is why the Bank calls an overdraft a short-term solution. The limit can be raised or lowered if the bank agrees. You repay as cash flow allows, but the bank can demand repayment at any time, and a late or missed repayment can bring a charge and a mark on the credit report.

Four charges are usual, and the guidance names them: one for setting the facility up, one at renewal, often each year when the facility is reviewed, one for changing the limit, and one for going over it. Ask the bank for all four before agreeing a limit, because the interest rate on its own understates what a facility renewed every year comes to.

If your bank turns an overdraft application down, the Bank Referral Scheme applies: the participating banks must, by law, offer to refer you to a designated finance platform, which is how many businesses first reach the lenders on panels like ours. That is also the point at which the products below become the practical question.

	Bank overdraft	Revolving credit facility
Who provides it	The bank that holds your current account	A lender on the panel, as a standalone facility
How it is arranged	With the bank, online, by phone or in branch	One application, one credit decision, then drawn as needed
Interest	On the overdrawn balance, at a rate that varies by bank and can change	On the balance drawn, at the rate in the facility agreement
Charges beyond interest	For set-up, yearly renewal, changing the limit and going over it	Set out in the lender's offer before you sign
Repayment	As cash flow allows, but repayable on demand	Draw, repay and redraw within the term the agreement sets
Can it be withdrawn?	Yes, at any time, at the bank's discretion	Only as the agreement provides, at its review points or on default
Speed	Usually straightforward with your own bank	iwoca states funds within hours of approval on its Flexi-Loan

What was the overdraft actually doing?

Before replacing an overdraft, look at how it was used, because each pattern maps to a different product. An overdraft that dipped negative for 3 or 4 days a month around payroll was doing timing work, and a revolving facility replaces it directly. One that sat permanently at its limit was working as a term loan the business never took out, and the closest replacement is a term loan for the core balance with a smaller facility on top.

Pull the last 6 months of bank statements and count: how many days negative, how deep, and whether the balance ever fully cleared. Clearing every month points to a revolving facility. Never clearing points to a term loan for the core balance, with a smaller buffer alongside it.

The alternatives, compared

Five products cover almost every overdraft-replacement case for UK businesses. Each is repaid in a different way, and that mechanism, rather than the label, decides whether it does the job the overdraft did.

On our panel, iwoca’s Flexi-Loan runs £1K to £1M and is drawn, repaid and redrawn over one day to five years, which is the nearest shape to an overdraft. YouLend (Up to £2M) and 365 Finance (£10K to £500K) write merchant cash advances repaid as a fixed share of daily card sales. Funding Circle (£10K to £750K, over 6 months to 6 years) and Capify (£10K to £3M, in daily or weekly instalments over 3 to 12 months) write the fixed-instalment loans that suit a core balance. Ranges are each lender’s own published figures at 7 September 2026; naming a lender describes our panel and is not an endorsement.

Alternative	Closest fit when	How it is repaid
Revolving credit / flexi-loan	Occasional dips, cleared monthly	Draw and repay as needed; the limit is reviewed periodically, as the overdraft was
Merchant cash advance	Card-heavy revenue, seasonal dips	A fixed share of each day’s card takings until the advance is cleared
Invoice finance	Cash tied up in unpaid invoices	Settled when the customer pays the invoice; an ongoing facility against the sales ledger
Term loan	Overdraft sat permanently at its limit	Fixed monthly instalments over a set term
Business credit card	Small, short purchases only	Monthly statement, with a personal guarantee usual

Why do banks review overdrafts, and does that affect the alternatives?

Banks review overdraft books for portfolio reasons as much as for customer-specific ones, including sector appetite, capital rules and their own lending strategy. A reduced limit is not automatically a verdict on your business, and the lenders on our panel underwrite on your recent trading, usually the last 3 to 6 months of bank and card statements, rather than on a bank’s internal policy.

It is still worth looking hard at the trigger. If the limit changed after months of hard limit-riding, returned payments or HMRC arrears, fix the underlying pattern first, because a facility layered onto the same pattern recreates it. Our page on what to do when a loan is not approved covers how lenders read those signals.

How fast can a replacement be in place?

Faster than most owners expect. The lenders above publish their own timings: iwoca pays out within hours of approval, YouLend quotes approval in as little as 24 hours with funds within 48, 365 Finance approval within 24 hours, and Funding Circle a decision in as little as an hour with funds typically in 48 hours (each lender’s own site, 9 September 2026). Statements are usually shared in minutes through open banking. The practical step is to gather them before the overdraft actually disappears, because arranging a replacement while the old facility still runs is calmer than arranging one afterwards.

The panel behind this page

Through our broker network we place cases with a panel of 200+ UK lenders offering 1,800+ products, from high-street banks to specialist funds. We check criteria first and approach only the lenders whose requirements you fit. The full roster, category by category, is published in our lender directory.

Frequently asked questions

What is the closest alternative to a business overdraft in the UK?

For most businesses the closest replacement is a revolving credit facility or flexi-loan: approved once, drawn when needed, repaid and drawn again. If revenue is card-heavy, a merchant cash advance repays from daily takings and suits seasonal dips; if the gap is caused by late-paying customers, invoice finance addresses the cause directly; if the overdraft sat permanently at its limit, many businesses move that core balance onto a term loan of 6 months to 6 years instead.

My overdraft limit has been reduced or ended. Will other lenders still consider me?

Usually, yes. Banks review overdraft lending for portfolio and policy reasons that other lenders do not share, and the lenders on our panel underwrite mainly on recent trading evidence from 3 to 6 months of bank and card statements. What does carry across is the underlying pattern: returned payments or tax arrears will concern any lender, so address those first.

Can I get an overdraft alternative with repayments that flex with revenue?

Yes. A merchant cash advance repays as a fixed share of daily card takings, so quiet weeks collect less. It suits card-heavy businesses with seasonal patterns, and unlike an overdraft it is a lump sum cleared over a period, typically 5 to 10 months at 365 Finance by its own figures, rather than an always-on buffer.

Is CapExpand FCA regulated?

CapExpand Ltd is not directly authorised by the Financial Conduct Authority. CapExpand Ltd (FRN 1060885) is an Appointed Representative of White Rose Finance Group Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 630772). That appointment means White Rose Finance Group Limited is responsible for our credit broking, and both firms appear on the Financial Services Register at register.fca.org.uk. We are a credit broker, not a lender.

Sources

The overdraft mechanics and the comparison table follow the British Business Bank's guidance, read 26 September 2026. Lender ranges and timings were read on each lender’s own site on 9 September 2026; panel ranges also render from our lender profile data, checked 7 September 2026.

Overdraft going or gone?

Tell us how you used it. We match the replacement to the pattern and set out every offer in full before you decide.

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