Business overdrafts: frequently asked questions

Running a small business means navigating tight margins, unpredictable payments and the occasional curveball. When cash flow doesn’t align with your outgoings, it’s easy to feel stuck.

That’s where a business overdraft can provide some breathing room.

This guide answers common questions about business overdrafts – from how they work to what they cost, and how they compare to other options. It’s not exhaustive and every business is different, but it should give you a clearer sense of what to expect and what to watch out for.

What is a business overdraft?

A business overdraft is a credit facility that lets your business spend beyond its current funds, up to a pre-agreed limit. It’s a flexible form of short-term financing businesses can use to manage cash flow gaps or cover unexpected expenses.

You only pay interest on the overdrawn amount, not the full limit. And you repay it whenever funds land in your account.
Imagine your account has £500, but you need to pay a £1,200 supplier invoice today. With a £1,000 overdraft limit, you can use your overdraft to cover the gap, and you repay it once your next payment clears.

Check out our guide to overdrafts and how they work.

Why would a business use an overdraft?

Even profitable businesses can face cash flow pressure – particularly smaller operations with limited reserves or irregular income.

Some common short-term scenarios where a business could use an overdraft include:

• Late customer payments – Waiting 30, 60 or even 90 days to get paid? An overdraft can keep you afloat.
• Unexpected costs – Repairs, tax bills, broken equipment – they rarely come at a good time.
• Stock or materials – Need to frontload costs for a large order?
• Quiet periods – Seasonality or slow months can strain cash reserves.
• Bridging finance – Cover expenses while waiting on a loan, grant or invoice payment.

How much can you borrow with an overdraft?

How much you can borrow depends on the provider and your business.

Banks usually assess:

• Your average monthly income. If you’re a sole trader it might be your personal and business income. If you’re a limited company it will most likely just be your business income unless you’re a startup with no business banking history, in which case they may use your personal income.
• Account activity and spending patterns
• Business age and trading history
• Creditworthiness (business and sometimes personal)

Zempler Bank, for example, offers overdraft limits up to £10,000 , designed to suit the day-to-day needs your business. Find out more about their business overdrafts.

Larger banks may offer higher unsecured limits – sometimes £25,000 or more – but the requirements can be more onerous and take longer to process. Some may also require security or collateral.

Just because you’re offered a higher limit doesn’t mean you need it. You should only borrow what’s manageable, not just what’s available.

How much does a business overdraft cost?

Costs vary widely depending on the provider, your risk profile and how long you stay overdrawn. That said, here are the main charges to look out for:

• Interest – Charged daily only on the amount you’re borrowing
• Arrangement fees – A one-off set-up charge for putting the facility in place
• Renewal fees – If your overdraft is reviewed or renewed annually

Zempler Bank keeps things simple:

• The first £5 you borrow is interest-free
• Beyond that, you pay daily interest with no unexpected fees
• Our overdrafts can come with an annual fee starting from £0 for eligible customers

It’s worth running the numbers before applying. Want to compare how much different overdraft facilities could cost you under normal usage?

👉 Try the Zempler overdraft calculator 

Can an overdraft be withdrawn?

Yes, in the UK, most business overdrafts are repayable on demand. That means your bank can reduce or withdraw your overdraft limit at any time.

This is rare in normal circumstances, but it can happen if:

• You go over your limit
• There’s a significant change in your account activity
• You default on repayments
• The bank changes its lending criteria

It’s worth checking the T&Cs carefully. An overdraft can be a safety net, but it’s one the bank can legally take away at short notice.

What are the risks of using a business overdraft?

When used carefully, an overdraft can support your business without locking you into long-term repayments. But there are a few things to be aware of:

• Costs can escalate – If you rely on it frequently or for extended periods
• It’s not guaranteed – The bank can withdraw or reduce your limit at any time
• Your credit score may be affected – If you exceed your limit or miss repayments
• It may mask deeper cash flow problems – And delay decisions about finding more suitable finance

If your overdraft becomes a permanent fixture rather than a fallback, it may be time to explore other options.

How do you apply for a business overdraft?

Every bank is different, but most follow a similar process:

1. You’ll need a business account with the bank
2. You may be asked for trading information and forecasts
3. The bank will run credit and affordability checks
4. You’ll agree on a limit, interest rate and any fees

You can apply for a Zempler Bank overdraft through the Zempler app or Online Banking. Limited companies can apply when opening an account. Sole traders will need to have had an account for three months, at which point we’ll invite you to apply if you’re eligible. 

Who is eligible for a Zempler Bank overdraft?

Zempler’s overdraft is designed for sole traders and small limited companies. We welcome businesses with limited credit history – though we will require some minimum account activity and responsible usage. Approval is always subject to credit and affordability checks.

How does a business overdraft compare to other finance options?

Here’s a quick breakdown of how business overdrafts stack up:

Note: the table above illustrates the typical characteristics of each finance option. Additional terms, features and costs may apply so it’s important to check with the specific lenders you’re considering.

Overdrafts are typically used for occasional, short-term financial support – they aren’t ideal for larger investments or regular funding.

Is a Zempler Bank overdraft right for my business?

That depends on what you need. Zempler’s business overdraft is:

• Fast to access – No lengthy forms, no weeks of waiting for approval
• Clear and simple – Transparent pricing, no hidden charges
• Built-in – Apply directly from your Zempler app
• Supportive – UK-based support team that understands small businesses

Our overdraft is designed to help sole traders and small teams manage the real-world ups and downs of running a business. It’s not designed to cover large capital investments or ongoing funding gaps.

If that sounds like your business, a Zempler overdraft might be worth a look.

Final thoughts

A business overdraft isn’t right for every situation, but for many small businesses it can be a valuable tool. It can give you more control, more breathing space and more confidence to get through the bumps of running a business.

Remember, an overdraft is a short-term borrowing tool, not a long-term finance solution. Use it carefully. Review your costs. And always have a plan for how, and when, you’ll repay it.

Need an overdraft that puts you in control of your money?

Give your cash flow more flexibility and ease the burden of unexpected expenses.

Explore Zempler Bank’s overdraft.