An overdraft is a credit facility you agree with your bank. It allows you to temporarily spend more than you have in your account to cover short-term financing needs.

It should not be used as a long-term source of finance – if an overdraft is used persistently your bank may question whether you are in financial difficulty.

You’ll need to agree your overdraft limit with your bank. You’ll usually be charged interest on any money you use, and may also have to pay a fee.

Advantages

Advantages include:

• it’s flexible – you only borrow what you need at the time, making it cheaper than a loan
• it’s quick to arrange
• you normally won’t be charged for paying off your overdraft earlier than expected

Disadvantages

Disadvantages include:

• there will usually be a charge if you want to extend your overdraft
• you could be charged if you go over your overdraft limit
• the bank can ask for the money back at any time
• you can only get an overdraft from the bank that you hold your business current account with

Contains public sector information licenced under the Open Government Licence v2.0.