Latest in Business Overdrafts
What is a business overdraft?
A business overdraft is a line of credit that allows you to spend up to a maximum credit limit when you spend more than the balance in your business transaction account.
As with any loan, any amount you spend using the overdraft is a debt you must repay, and interest is charged daily on the overdraft balance until it is fully repaid.
Most business transaction accounts have an overdraft facility available.
An overdraft facility essentially means that a business can continue to make withdrawals when the account is empty, up to its overdraft limit, giving a large degree of flexibility in its cash flow. This can be extremely useful for paying employees or bills on time, even if your clients have not paid you yet.
There are a few types of business overdrafts, which differ in terms of the security used to guarantee the line of credit:
- Residentially secured business overdrafts
- Commercially secured business overdrafts
- Unsecured business overdrafts
How to compare business overdrafts
It’s important to look for a business overdraft facility with low fee and a low interest rate, and any useful features such as the credit limit your business may need. Thankfully, Canstar can help you compare your options easily.
How does Canstar compare business overdrafts?
Canstar uses a unique, sophisticated star ratings methodology to rate business overdrafts and business loans, which you can see for yourself in our star ratings report.
Our ratings range from 1 star to 5 stars based on how well a product provides value to consumers, and we rate different types of business loans and business overdrafts:
- Commercially secured business overdraft
- Residentially secured business overdraft
- Commercially secured business loan
- Residentially secured business loan
Each business overdraft is rated based on two things: price and features. We use a similar methodology for all of the other categories we rate, and we encourage you to read more of them at canstar.com.au
Business overdrafts vs business loans
Since we recognise that business owners have different needs when it comes to credit for their business, CANSTAR rates both business overdrafts and business loans separately.
While a business overdraft is an extendable line of credit a business can withdraw from, a business loan is a loan for business purposes, which can be used for anything from upgrading equipment to paying staff.
As with all loans, a business loan is a debt that must be repaid within a set timeframe, and interest will be charged until the debt is fully repaid.
Learn about the pros and cons of business overdrafts versus business credit cards and business loans. And if you’re a new startup, consider our list of accelerator and incubator programs available in Australia.
Business Overdrafts Glossary Of Terms
Please note that these are a general explanation of the meaning of terms used in relation to business overdrafts.
The wording of credit terms and conditions may use different phrases or terms, and you should read the terms and conditions of the relevant overdraft facility to understand the features and cost of that loan. You cannot rely on these terms to the part of any overdraft facility you may purchase.
Refer to the product disclosure statement (PDS) and Canstar’s Financial Services and Credit Guide (FSCG).
Account balance: The amount of money you have in your account.
Account-keeping fee: The fee charged by a lender to maintain a business’s overdraft facility.
Business loan: A loan granted to fund a business and its proceedings.
Business overdraft: A line of credit that becomes available to a business when the business makes a withdrawal for a greater amount than the balance in its transaction account.
Establishment fee: An upfront fee charged to set up the overdraft facility. In practice this is often negotiated between business owners and financial institutions based on the nature of the overdraft.
Facility limit: The maximum amount of money that can be borrowed using the overdraft facility.
Over-limit fee: A penalty fee charged if you exceed your overdraft credit limit.
Overdraft balance: The amount of money you have spent using the overdraft facility.
Secured overdraft: An overdraft that is backed by collateral (security), such as property owned by the business (commercially secured) or owned by the business owner (residentially secured).
Security: Collateral used to secure a loan or overdraft.
Unsecured overdraft: An overdraft that is obtained without collateral (security).
Business overdraft providers we rate
At the time of writing, Canstar rates the following providers of business overdrafts (listed below in alphabetical order):
- Bendigo Bank
- Heritage Bank
- Newcastle Permanent
- St.George Bank