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.
An overdraft facility can be a solution, but only once you’ve ruled out the alternatives, because it can be quite expensive.
No annual or monthly fee when you apply using the Finder link.
The Zempler business account has no monthly fee and can be applied for in a matter of minutes online. Once your account is up and running, you'll be told whether you're also eligible for a business overdraft of up to £2,000, which can help you cover any unexpected expenses. If you're eligible, you'll be able to simply add your overdraft to your account through the app or via online banking. The account can also be integrated with accounting software such as Xero, Quickbooks and Sage, offers spending reports and instant notifications for payments and transfers, and enables you to capture and add digital receipts in the app. There's also the option to upgrade your account for a monthly fee, which will offer additional benefits such as cashback on your card spend and a credit builder feature, to help your business improve its credit score over time.
Pros
Open an account in 5 minutes
"Cashplus iDraft" once eligible
Currency cards for travel
Online services in addition to the mobile app
Cons
Charge to have your bank card issued
Traditional bank still needed for majority of your business finance needs
On application (subject to status, eligibility and The Co-operative Bank's Lending policy)
Requires credit check
This business account from the Co-op offers free business banking transactions for the first 30 months, including ATM withdrawals, debit card purchases, faster payments and automated debits and withdrawals. After that, a £10 monthly service charge applies and certain transactions will also be charged a fee. You'll be able to apply for an overdraft of up to £250,000 on the account, but whether you'll be eligible will depend on your individual circumstances. To apply, you'll need to complete and return an overdraft request form, plus an assets and liabilities form if you're applying for more than £10,000. These can be found on the Co-op website. Further benefits of the account include access to the payment app from Incomeing, and to legal, technical and HR services with Assurant. Customers also have access to merchant services with Fiserv, tailored business insurance cover with AXA, and access to free business webinars.
Pros
Free bank transfers
Access to a payment app
Multiple ways to bank
Cons
Monthly service charge applies after 30 months
Only suitable for sole traders or single directors
Fees apply to certain transactions
Accounting integrations
QuickBooks, Sage, Xero, Multiple providers
Account fee
Free
Arranged overdraft
On application (subject to status, eligibility and The Co-operative Bank's Lending policy)
Receive a £100 Amazon gift card when opening a HSBC Kinetic Account between 8.8.24 and 31.10.24.
This everyday business bank account from HSBC has no monthly maintenance fee for the first 12 months, but charges £6.50 per month after this. You can apply for the account via the app and most accounts are up and running within 48 hours. There's also the option of applying for an overdraft of up to £30,000 in the app, with funds available on the same business day that your credit assessment is successful. Through the account, you'll be able to manage direct debits, standing orders and future payments, get insights on your business spending through automatically categorised transactions, and keep track of your finances with a monthly breakdown of cash flow. You'll also be able to freeze your debit card if you misplace it, and unfreeze it again when found, plus scan and deposit cheques and make payments of up to £25,000 per day in the app.
Pros
Easy to apply for and manage
Arranged overdraft
Useful app features to help you track spending
No monthly fee for 12 months
Cons
Interest is charged on overdraft
Monthly maintenance fee applies after first 12 months
A business overdraft is not unlike a personal overdraft: it’s a feature of your business current account that allows you to keep spending even if your account balance goes below zero.
Just like with personal accounts, you can choose whether or not you do want one as part of your account. There are quite a few fees and costs (more on this below), so you should weigh up options carefully before applying.
Business overdrafts are a flexible, if not cheap, way of borrowing money, and can help you with unexpected costs (bills, invoices and so on) as well as with occasional cash flow issues.
Can I get a business bank account with an overdraft?
Most traditional banks offer business overdrafts with their business accounts, and even some challenger banks will let you apply for one.
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.
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 sets of costs to take into account:
Interest rate. This 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 England official base rate.
Fees. These tend to be fixed and are charged annually or monthly. Some banks will charge it whether you use the overdraft facility or not (and call it something like “arrangement fee”).
The advertised interest rate on business overdrafts is often quite decent, but do 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).
On fees, make sure you have 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 unauthorised borrowing fees, which can be quite hefty.
Will I be credit-checked if I apply for a business bank account with an overdraft?
Yes, the bank will check your business credit score. Depending on how it is, your business may be refused the overdraft application or offered a higher rate.
However, many banks will let you check your eligibility first. Using a so-called “eligibility checker” is always a good idea because it will tell you how likely your business is to get accepted without leaving a trace on your credit record.
Who might open a business bank account with an overdraft?
An overdraft can be a good option for a number of businesses, from very small to bigger ones.
However, it should be seen as a safety net you can fall on if something goes wrong more 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 too.
Pros and cons of business overdrafts
Pros
Business overdrafts are a great safety net to cover unexpected costs.
You can use the funds for any purpose.
They are very flexible; you can borrow money anytime and pay it back anytime.
You only have to pay interest if you do in fact use the overdraft facility.
Quick to arrange as it’s just an extra feature of your business account.
Cons
Fees can be quite high, even if you don’t use the facility.
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.
Only available to businesses that have a pretty good credit score.
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).
Frequently asked questions
Depending on your bank, you should be able to do it online or in person. It should be a relatively straightforward process if you already have a business account with that same bank, because it will already have all the information on your business and its finances (unless your overdraft application is part of a wider business account application with a new bank, of course).
Apart from business credit cards, which we’ve already mentioned, there are a few business loan options that are more suitable to help with certain cash flow issues. Check out business credit lines and invoice financing, for example.
Don’t panic! There are other options for businesses whose credit record is less than great. Here is a guide on business credit cards for bad credit that may help.
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We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.
Valentina Cipriani was a writer at Finder UK. She wrote news, features and guides about banking and credit cards, helping people to improve their financial lives. She holds an MA in International Journalism. See full bio
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