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Who does a Business Overdraft work best for
Written by
Shaun McGowanA business overdraft isn’t ideal for every business. However, if your business has a high turnover and needs fast access to funds on an irregular basis, an overdraft may be more suitable than other forms of business finance, such as a line of credit.
In summary, business overdrafts in Australia
- Range from $25,000 to $500,000
- Have interest rates between 14.95% pa - 24.93% pa (APR)
- Allow access to secure funds at any time
- Only accrue interest on the amount withdrawn
- Are assessed according to business turnover
- Can be approved very fast by non-bank lenders
- Usually involve an easy application process
Key Features
- Borrow from $5,000 to $500,000
- Fixed or variable interest rates
- Repayments to suit your budget
- Terms from one month to five years
- Secured & unsecured options
Who is eligible?
- Own a business and have an ABN
- Business is GST-registered
- Permanent Citizenship or Residency
- Minimum business-operating time of six months
- Can provide business bank statements
What is a Business Overdraft
A business overdraft is an extension of credit by a lender that allows a business to access funds greater than the amount available in its business trading account. It is often linked directly to your business account, allowing business owners immediate access to available overdraft funds. You can choose to apply with a bank or non-bank lenders.
A business overdraft is a popular form of business finance used in almost every industry, for managing working capital, purchasing inventory, funding new developments, and much more.
In Australia, industries commonly using them include
- Retail
- Wholesale
- Manufacturing
- Professional services
- Food and beverage
- Technology
- Automotive
You can choose to apply with no security — called an Unsecured Business Overdraft — or provide security backed by property.
Shopping around
Shopping around for the right loan can save you thousands of dollars in interest and fees.
Find the best rate on a business overdraft
FIND YOUR RATEHow to use a Business Overdraft
Below we'll look at two examples of how a business overdraft might be used.
How a Business Overdraft works
| Overdraft limit | $500,000 | $500.000 |
|---|---|---|
Amount withdrawn | $400,000 | $25,000 |
Amount accruing interest | $400,000 | $25,000 |
Remaining overdraft credit | $100,000 | $475,000 |
Annual business turnover | Less than $5m | More than $5m |
Repayment frequency | Weekly | Weekly or Monthly |
In the first example
- A business is approved for an overdraft of $500,000
- The business withdraws $400,000
- The amount accruing interest is $400,000
- The remaining overdraft amount is $100,000
- The business has an annual turnover less than $5m
- The business will make weekly repayments
In the second example
- A business is approved for an overdraft of $500,000
- The business withdraws $25,000
- The amount accruing interest is $25,000
- The remaining overdraft amount is $475,000
- The business has an annual turnover of more than $5m
- The business can choose between weekly or monthly repayments
Need fast access to finance?
Getting the right Business Overdraft
Terms on a business overdraft range from 3 months to 5 years. However, even if you agree to a 5-year term with a lender, they may be able to review the overdraft facility at any time.
Business overdraft terms
| Minimum term | Maximum term |
|---|---|
3 months | 5 years |
Each lender will have their own fees and interest rates, however it’s common that you will be required to pay a facility fee — an annual fee to keep the overdraft amount available.
Interest on a business overdraft will only be calculated on the amount withdrawn and each time you withdraw an amount.
Find the best rate on a business overdraft
FIND YOUR RATEBusiness overdraft fees
| Overdraft amount | Annual facility fee |
|---|---|
$500,000 | $395 |
Repayment requirements
Lenders also have their own repayment requirements. For example, a traditional bank overdraft may only require you to pay back the interest on any amount withdrawn, while some specialist lenders may set a minimum principal repayment amount.
Be sure to research each lender’s repayment criteria before agreeing to an overdraft.
Business overdraft interest rates
| Lowest rate | Highest rate |
|---|---|
14.95% | 24.93% |
How to qualify and apply
To qualify for a business overdraft, lenders will need to conduct a credit assessment. While the most important consideration for any loan is your ability to repay the borrowed amount, you can only apply if:
- You have a valid Australian Business Number (ABN); and
- You are an Australian citizen or permanent resident; and
- You have a residential address in Australia; and
- Your business is registered for GST; and
- Has an annual turnover of at least $250,000; and
- Has been operating for at least three years; and
- You have a good credit history; and
- You intend to use the overdraft entirely or predominantly for business purposes.
You can apply for a business overdraft with some banks, though many borrowers will seek out non-bank lenders and specialist lenders, often due to the fast approval time and access to funds offered by these companies. Most specialist non-bank lenders will also allow you to apply online through a quick and simple form.
If you are looking to borrow up to $150,000, some specialist lenders will only require business bank statements to grant approval — you could apply online and have the funds available the next day.
You can apply for a Business Overdraft with GetCapital. Read our review of the lender or compare finance options from Australia’s leading business lenders by visiting our Lender Reviews section.
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| YEAR | REMAINING BALANCE | MONTHLY REPAYMENT | INTEREST PAID | ENDING BALANCE |
|---|---|---|---|---|
-- | -- | -- | -- | -- |
Here are the most popular business overdraft questions people are asking:
Can I increase my overdraft limit?
Yes. Provided you can demonstrate an ability to meet repayments on the new amount through increased business turnover, your lender should allow you to increase your overdraft limit.
What’s the average business overdraft interest rate?
Interest rates on a business overdraft in Australia can vary between 14.95% and 24.93%. The average interest rate for a secured overdraft will be between 14.95% and 18.95% and for an unsecured business overdraft between 18.95% and 24.93%.
Can I get an unsecured business overdraft?
Yes, you can apply without providing a deposit or any collateral as security — this is referred to as an unsecured business overdraft. However, you will get the lowest interest rates if you apply for a secured business overdraft, as a securitised overdraft presents less risk to the lender.
Is there a limit on the number of withdrawals?
Once you are approved for your business overdraft, you will be free to access the funds as and when they are required.
You'll still need to pay an annual facility fee for the access to your overdraft, and remember that any amount used will incur interest charges until it is repaid.
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About the Author
Shaun
McGowan
Shaun McGowan
Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.