Quick answer
A business overdraft lets your everyday transaction account go below zero, up to an approved limit. You pay interest only on the overdrawn balance, plus account or limit fees, and the limit refills as deposits come in. Banks are the main providers and often secure larger overdrafts against property; some non-bank lenders now offer them too. Overdrafts suit short, recurring cash flow dips, not long-term borrowing or asset purchases.
Key points
- Your transaction account can dip below zero up to a limit, and deposits pay it back automatically
- Interest applies to the overdrawn balance; limit or account fees usually apply regardless
- Banks often want property security for larger limits, and review facilities regularly
- An overdraft that never returns to credit has become long-term debt in disguise
- If a bank declines or cuts the limit, non-bank overdrafts, lines of credit and invoice finance can fill the gap
- Typical limits
- $5k to $500k+; larger with property
- Structure
- Attached to your transaction account
- Security
- Often property for bank limits; guarantee usual
- Best for
- Short, recurring dips in cash flow
If your bank has offered you an overdraft, think hard before saying no. A bank overdraft secured over property is one of the cheapest and most convenient ways to smooth out cash flow that exists. It sits quietly in your everyday account, costs little when you’re in credit, and catches you on the morning wages leave before a customer’s payment arrives.
Where overdrafts get tricky is the fine print: how the limit is reviewed, what it costs when it’s idle, and what happens when a bank decides to shrink it. This page covers all three.
What is a business overdraft?
It’s a limit attached to your business transaction account that lets the balance go negative. If the limit is $50k, the account can run down to minus $50k. Every deposit pays the overdrawn balance down automatically, and the limit is available again straight away.
On business.gov.au, the federal guidance frames an overdraft as letting you withdraw money from your account even when it’s empty, up to a set limit, and adds a sensible caution: an overdraft isn’t something to rely on for capital purchases or long-term finance. That one line is the best guide to using an overdraft well.
Secured or unsecured?
Banks offer both, and the split usually comes down to size.
- Smaller, unsecured limits. Assessed on your account history, financials and credit file. Directors normally guarantee them.
- Larger, secured limits. Backed by a registered mortgage over residential or commercial property, which lets the bank offer more and price it lower.
Some non-bank lenders have moved into this space. As at October 2026, Shift’s website lists a business overdraft with limits from $10k to $2m, revolving for a term of up to five years, with interest charged only on what’s drawn. Limits under $500k are assessed using linked bank account data and can be approved within hours; larger limits are assessed on financials. Shift lists no establishment fee and an annual fee of $495 or $795 depending on the limit.
What do banks look at?
| What’s assessed | What the bank wants to see |
|---|---|
| Account conduct | The balance regularly swings back into credit, without dishonours |
| Financial statements | Profitable trading, usually across two years |
| Working capital | Current assets comfortably covering current liabilities |
| Security | Property equity for larger limits |
| ATO position | Lodgements up to date; any debt on a plan you’re meeting |
| Purpose | Day-to-day cash flow, not funding a long-term asset |
The working capital ratio is a quick way to see your business the way a credit officer will. Try our working capital ratio calculator before you ask for a new or bigger limit.
Bank still deciding, or already said no? Tell us about it; an enquiry with us never touches your credit file.
What does an overdraft cost?
Overdraft pricing has two layers:
- Interest on the overdrawn balance, calculated daily and charged monthly. Days spent in credit cost nothing.
- Fees for the facility, commonly a limit fee, line fee or annual fee based on the size of the limit, plus account-keeping fees.
There may also be charges if you go beyond the limit, and establishment or valuation costs on a secured facility.
We don’t publish rates. To compare, work out a realistic year. For example, an overdraft that averages $20k drawn for four months of the year costs interest on roughly that, while the limit fee applies to the whole limit for all twelve months. Ask each provider to show you that year in dollars.
The “hardcore” trap
Bankers use the term hardcore for the part of an overdraft that never gets repaid. If your account has sat at minus $45k on a $50k limit for eighteen months, that $45k isn’t short-term float anymore. It’s a long-term loan with short-term terms.
That matters for two reasons. First, the bank can review the limit, and an overdraft that never returns to credit is exactly the kind it’s likely to reduce. Second, you’re probably paying overdraft pricing and fees on what should be a cheaper term debt. Many owners fix this by moving the hardcore into a term loan and keeping the overdraft for genuine swings.
When the bank reduces, cancels or declines
Overdraft terms generally let the bank review, reduce or cancel a limit, usually with written notice. If your limit is cut, you’ll need to bring the balance back within the new limit.
Most banks follow the Banking Code of Practice, which was updated in 2025 and broadened the small businesses it covers. If you believe a bank has handled your facility unfairly, the Australian Small Business and Family Enterprise Ombudsman can point you to dispute options.
Practically, though, what most owners need is a replacement before the money runs out:
- A non-bank overdraft or business line of credit, sized on bank statements rather than financials.
- Invoice finance, if the shortfall is customers paying slowly. Our invoice finance vs overdraft comparison shows when it does the job better.
- A property-secured facility from a specialist lender, when real estate is available and the amount needed is bigger.
Our guide to being refused a business overdraft increase walks through each step.
A worked example
An illustrative scenario only.
A wholesale supplier with turnover of about $3m pays its own suppliers on 14-day terms and is paid by retail customers on 45-day terms. Most months the account dips to minus $60k for a fortnight, then recovers. The owners hold an $80k overdraft secured over their warehouse.
- In a normal month, the overdraft costs interest on a modest average balance plus the limit fee.
- When a big customer started paying at 75 days, the account sat at minus $78k for three months straight.
- The bank flagged it at review. Rather than risk a cut, the owners added invoice finance for that one customer’s invoices and the overdraft returned to its normal pattern.
The lesson: the overdraft worked well for the swing it was built for, and needed a partner for the problem it wasn’t.
Pros and cons
In favour
- Built into your account, so no transfers or drawdowns.
- Cheap when secured and used for short dips.
- Every deposit reduces the balance automatically.
Against
- Limit fees apply even when you’re in credit.
- Banks review and can reduce limits.
- Easy to let it become permanent debt.
- Larger bank limits usually need property.
When the overdraft isn’t enough
Overdrafts are a great tool when the bank is happy and the swings are small. When the limit is too tight, has been cut, or your bank won’t extend one, it’s worth knowing what else exists before payroll week arrives.
Sketching out your situation for us is roughly a one-minute job, and doing so leaves your credit report untouched. Your enquiry isn’t parcelled out to a crowd of funders; a specialist here reviews your circumstances personally and gives you a call. Let us know your current limit, how often you hit it and what security you have, because the right replacement depends on exactly those details.
Frequently asked questions
How does a business overdraft work?
Your bank approves a limit on your business transaction account. Payments can take the balance below zero up to that limit, and every deposit reduces the overdrawn amount. You pay interest on the negative balance for the days it's negative, plus any limit or account fees.
Do I need security for a business overdraft?
For small limits, some banks and non-bank lenders offer unsecured overdrafts based on your account history. For larger limits, banks commonly ask for a registered mortgage over property, and directors usually sign guarantees.
Can my bank reduce or cancel my overdraft?
Yes. Overdraft terms generally allow the bank to review, reduce or cancel the limit, usually with written notice. If that happens, you'll need to bring the balance back within the new limit, so it pays to have a backup plan.
Is a business overdraft cheaper than a business loan?
Often, when it's a bank overdraft secured by property and used for short dips. Because interest runs only on the overdrawn balance, a lightly used overdraft can cost very little. A permanently drawn overdraft, with fees on top, can end up costing more than a term loan.
What can I do if my bank says no to an overdraft increase?
Ask why, and whether more security or updated financials would change the answer. If not, consider a non-bank overdraft or line of credit, invoice finance if customers owe you money, or a property-secured facility from a specialist lender.
Are overdraft fees tax deductible?
Interest and fees on borrowing used for business purposes are generally deductible business expenses. Your accountant can confirm the treatment for your structure and how the funds were used.