An overdraft is a sum of money extended to you as credit by your bank, set at a pre-arranged limit when your account balance drops below zero.
Banks usually charge interest on any amount of overdraft you use, but the terms and price of overdrafts will vary between providers.
You can use a bank overdraft to manage your cashflow, but it's probably not suitable if you’re looking for long-term funding.
Getting an overdraft is similar to applying for a loan from your bank. Most lenders require you to:
You probably shouldn't use an overdraft if you need long-term funding – it is likely to be more expensive than taking out a loan.
Your bank may turn you down if you can’t:
Banks are the main source of small business overdrafts. The Better Business Finance website offers a business account finder service.
You can also consider finance from a non-bank lender. For more information, see our guide on non-bank lenders.
You can launch an appeal if you've been been turned down by a bank for an overdraft, but it's possible this won't make a difference. For example, you may have been turned down because your business plan wasn't convincing, or because of your credit history.
You can start your appeal on the Better Business Finance website.