Overdraft and revolving credit

Borrowing on demand up to a limit. Flexible, repayable on demand, and increasingly hard to get.

What it means

An overdraft allows the account to go below zero up to an agreed limit. A revolving credit facility is the same idea as a separate line.

Why it matters

It suits short-term working capital gaps. It is not suited to funding a permanent shortfall, and using it that way is a common route to distress.

What it looks like in practice

Overdrafts are typically repayable on demand, which means the facility can be withdrawn — usually at the moment you most need it.\n\nCosts are an arrangement fee plus interest on the drawn balance.

What to watch out for

A permanently drawn overdraft, which is a term loan with none of the protections. And personal guarantees, which are standard on small business facilities.

Where to get proper advice

An FCA-registered commercial finance broker, and your accountant on affordability. The British Business Bank's guidance is independent of any lender.