Business overdraft: everyday float built into your account

A business overdraft is the oldest and simplest form of working capital finance. Your lender sets a limit on your everyday transaction account, and the balance is allowed to go below zero up to that limit. Payments go out as normal, deposits come in as normal, and the overdraft quietly absorbs the gap in between. You generally pay interest only for the days and dollars you’re actually overdrawn.

For a business with steady trading and small, constant timing gaps, it’s hard to beat. For a business with large or growing gaps, it can become a trap. Here’s how to tell which you are.

What exactly is a business overdraft?

The business.gov.au glossary defines an overdraft facility as an arrangement where a lender lets a business withdraw more than the balance of an account. A few features flow from that:

• No draw-down step. Unlike a loan or a line of credit, you don’t request funds. The account just goes negative when payments exceed the balance.
• Automatic repayment. Every deposit reduces the overdrawn balance first.
• Pay for what you use. Interest is generally calculated daily on the overdrawn balance only.
• A fee on the limit is common. Many overdrafts carry a facility or line fee on the full approved limit, used or not.
• Periodic review. Overdrafts are typically reviewed, often annually. The lender can renew, increase, reduce or, under some terms, cancel the facility.

The business.gov.au funding guide lists overdraft services among the standard bank debt products, alongside loans and lines of credit.

What is an overdraft good for?

Overdrafts are at their best as everyday float: covering the few days or weeks between paying out and getting paid.

• Wages before receipts. Payroll runs on a fixed cycle; customer payments don’t.
• Supplier runs. Paying suppliers on time, or early for a discount, before your own debtors pay.
• Super on payday. The ATO confirms that from 1 July 2026, employers must pay super for each payday, with contributions reaching employees’ funds within 7 business days. For businesses used to paying super quarterly, that changes the shape of their cash flow, and a modest overdraft can smooth the adjustment.
• Card-heavy businesses. Practices and clinics where card settlements arrive daily but rent, wages and stock go out in lumps. The medical centre finance page looks at how lenders read practice cash flow.

What it’s not good for: buying equipment, funding a fit-out, carrying a business through months of losses or paying off a large tax debt. Those needs have better-suited products.

How is an overdraft different from a line of credit?

They’re close cousins and the terms are often used loosely. The real differences:

	Business overdraft	Business line of credit
Where it lives	Inside your transaction account	Usually a separate facility
How funds are used	The account simply goes below zero	You draw into your account
How it’s repaid	Deposits sweep the balance automatically	Deliberate repayments or minimums
Typical providers	Mainly banks	Banks and non-bank lenders
Review	Commonly reviewed periodically	Varies by provider and terms
Best for	Constant small float	Larger, uneven or seasonal gaps

If the bank won’t offer you an overdraft, perhaps because of a short trading history or a credit blemish, a business line of credit from a non-bank lender often fills the same role. Unsecured lines are sized on turnover and bank statements, typically $5k to $500k.

Not sure whether an overdraft-style facility is the right fit? You can check what’s available to your business in about a minute.

What do lenders look at when setting a limit?

• Turnover and its rhythm. Lenders want to see deposits that reliably clear the overdrawn balance within each cycle.
• How the account is run. Dishonours, unarranged overdrawn days and constant pressure at the limit all count against you.
• Security. Smaller limits can be unsecured; larger ones are often secured over property or business assets, usually with director guarantees.
• Financial statements. Banks commonly ask for annual accounts and tax returns, and sometimes ongoing reporting.
• ATO position. Lodgements up to date and any debt disclosed and managed.

What does an overdraft cost?

Pricing depends on the business, the security offered and the size of the limit. The cost usually has three parts:

1. Interest on the overdrawn balance, calculated daily.
2. A facility or line fee on the whole limit, whether you use it or not.
3. Establishment and review fees, plus charges for exceeding the limit or for dishonours.

The trick is matching the limit to genuine need. A large limit you rarely touch can cost more in fees than it saves. A small limit you’re constantly pressed against leads to dishonours that damage future applications.

Illustrative example

Illustrative example: A physiotherapy practice with three clinicians banks card and health-fund payments daily, around $80k a month. Wages run fortnightly, rent monthly and super now goes out each payday. In most fortnights, the account dips below zero for two or three days before receipts catch up. A $25k overdraft absorbs those dips, deposits sweep the balance back each cycle, and the practice pays interest only on the few days it’s overdrawn. When the owners later want $150k for a second clinic fit-out, that becomes a separate conversation about fit-out finance. Stretching the overdraft to cover it would have left no float for wages.

Common overdraft mistakes

• Never getting back above zero. If the account is overdrawn every day of the month, the overdraft has become term debt in disguise. It’s expensive and exposed to review. Moving that “hardcore” balance onto a proper loan through business debt refinance is often cheaper and more secure.
• Treating the review as a formality. Have your figures ready before the anniversary.
• Using it for long-term purchases. Equipment and fit-outs belong in dedicated finance. See working capital loans for the bigger picture.
• Running into the limit. Dishonours show up on every bank statement you ever give another lender.

Need a float that keeps up with your business?

If wages, suppliers and now super on payday keep squeezing your account between deposits, an overdraft or a revolving facility could take the pressure off, and finding out where you stand takes very little time. The enquiry is about a minute long and there’s no credit check when you first submit it. We won’t scatter your details across a long list of lenders. A real person studies how money moves through your account and gives you a call. Please give us accurate figures, especially monthly turnover and any existing facilities, so the first recommendation actually fits how your business runs.

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