Business bank accounts with overdraft protection in Canada
Overdraft protection offers a useful safety net for your business, but watch out for fees and interest.
From a piece of equipment breaking to the cancellation of a major order, business owners often have to deal with unexpected costs that can push their business account balance below zero.
A business overdraft facility could be the solution, but only once you’ve ruled out the alternatives because it can be quite expensive. In this guide, we’ll look at some popular business bank accounts with overdraft in Canada, plus learn how an overdraft facility can help your business.
Business bank accounts with overdrafts in Canada
Want to add overdraft to your business bank account or skip overdraft fees altogether? Keep reading to find out about popular business accounts with overdraft protection – or no overdraft fees at all.
Vault Business Account
RBC Digital Choice Business Account
TD Every Day Business Plan
BMO Business Builder
Scotiabank Right Size Account for Business
CIBC Advanced Business Operating Account
National Bank Premium Business Package
What is a business overdraft?
A business overdraft is a feature of your business chequing account that allows you to keep spending even if your account balance goes below zero. This means you can continue to cover expenses and unexpected costs even if you have an unexpected cash flow shortage, and you can avoid paying expensive NSF fees.
Just like a personal overdraft, you can choose whether or not you want overdraft protection as part of your business account. It’s a flexible way of borrowing money, but there are quite a few fees and costs that apply (more on this below). Make sure you weigh up your options carefully before applying.
What is an NSF fee?
NSF stands for non-sufficient funds. Your bank or financial institution charges an NSF fee when you don’t have enough money in your chequing account to cover a transaction. This fee can be $40 or more, so overdraft protection is often a cheaper option if your business bank account sometimes gets low on funds.
Can I get a business bank account with an overdraft?
Yes. Most business bank accounts come with overdraft protection. Some accounts have overdraft automatically built in, while others offer it as an optional extra for an additional monthly or annual fee.
Business overdrafts are more often unsecured, but some banks may also offer a “secured” option, which means you’ll have to use your business assets as collateral.
Overdraft limits, interest rates and fees will depend on the bank, on your business’s turnover, and on how much you borrow during the year.
How much does a business bank account with an overdraft cost?
There are two main overdraft costs to take into account:
- Interest rate. Overdraft interest is only charged if you do in fact end up using your overdraft. The rate you are offered will often depend on your business turnover and credit score. The final cost will also depend on how long it takes you to pay the overdraft back. The rate is usually variable, which means that it changes with the Bank of Canada’s official overnight rate.
- Fees. Overdraft fees are often fixed and are charged annually or monthly. Some banks will charge it whether you use the overdraft facility or not, while others will charge a per-use fee on each overdraft transaction you make.
The advertised interest rate on business overdrafts is often quite reasonable, but keep in mind that it is not necessarily the same as what your business will be offered (which will largely depend on its credit score).
As for fees, it’s important to read the terms and conditions carefully so you know what and when you’ll be charged. You should also watch that you don’t go beyond your arranged overdraft’s limit to avoid any unauthorized borrowing fees, which can be quite hefty.
Will I need to complete a credit check if I apply for a business bank account with an overdraft?
Yes, the bank will check your business credit score when assessing your application. Depending on your score, your overdraft application may be refused or you may be offered a higher rate.
It’s a good idea to check your business credit score in advance so you know where you stand. Taking steps to improve your score could help you qualify for a lower overdraft interest rate.
Who might open a business bank account with an overdraft?
An overdraft can be a good option for many businesses, including small businesses and much larger operations.
However, it should only be seen as a safety net you can fall on if something goes wrong, rather than as a line of credit to use regularly. It is a fairly expensive way of borrowing money, so if you need it often, you may want to look for a cheaper solution.
For example, you can consider a business credit card, which can help your business cash flow and lets you borrow interest-free as long as you always pay back your bill on time. Fees also tend to be lower than with overdrafts and you might get additional benefits and perks too.
Do I qualify for business overdraft?
The exact requirements you’ll need to meet to qualify for an overdraft facility vary between banks. But as a general guide, you will need to:
- Have a business bank account that has an overdraft facility
- Have a good credit score
- Have a detailed business plan
- Meet revenue requirements
Check with your bank to find out if you’ll need to provide any additional documentation during the application process.
Pros and cons of business overdrafts
Pros
- Manage short-term cash flow issues. Business overdrafts offer a handy safety net when your business experiences an unexpected shortfall.
- Avoid NSF fees. A business overdraft lets you avoid expensive NSF fees if you don’t have enough funds in your account to cover a payment.
- Flexible. You can use overdraft protection funds for any purpose, and you can borrow funds at any time and pay them back at any time.
- Maintain your business’ reputation. Having overdraft protection in place can prevent you from missing a payment and harming your business’ reputation.
- Only pay interest on the amount you use. You only have to pay interest if you do in fact use the overdraft facility, and you only pay interest on the funds you access.
- Easy application process. It’s quick and easy to set up overdraft protection on your business account, and it’s much less complicated than applying for new credit.
Cons
- Monthly fees. Monthly fees for overdraft protection can quickly add up, even if you don’t use the facility.
- Overdraft fees. Your bank may also charge overdraft handling fees on each transaction for which you don’t have sufficient funds.
- Overdraft interest. Check the interest rate that applies to your overdraft amount. Keep in mind that the rate is variable so the cost of using the overdraft facility may increase.
- Difficult to shop around. As overdrafts are part of your business account, shopping around for the best deal is a bit hard unless you are prepared to switch the whole account.
- You’ll need good credit. Overdraft protection is only available to businesses that have a pretty good credit score.
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Bottom line
Just like personal overdrafts, business overdrafts shouldn’t be used all the time. But they can be good to have if anything goes wrong and your business has to face extra costs.
Be especially careful when applying and make sure you have read and understood all the fees and costs (particularly what happens if you go over the credit limit).
Business overdraft frequently asked questions
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