Unexpected business expenses, such as repairing broken equipment or the loss of a large order, are a common source of stress for business owners and can quickly deplete available funds.
In some cases, an overdraft can be one option if you don't have the available cash or savings.
If your business bank account has an overdraft, it can be dipped into when needed – but before you withdraw from it always check what charges will apply.
In this guide we will look at some of the best business overdrafts from the UK's top banks.
| Provider | Score | Details |
|---|---|---|
| 1. Starling Bank | ★★★★★ | Learn more |
| 2. Metro Bank | ★★★★★ | Learn more |
| 3. Santander | ★★★★★ | Learn more |
| 4. Barclays | ★★★★★ | Learn more |
| 5. NatWest | ★★★★★ | Learn more |
| 6. HSBC | ★★★★★ | Learn more |
| 7. Royal Bank of Scotland | ★★★★★ | Learn more |
| 8. TSB | ★★★★★ | Learn more |
| 9. The Co-operative Bank | ★★★★★ | Learn more |
At a Glance, pros and cons
An overdraft isn't always the solution but it can be handy if you're short of cash. Here we look at some of the main pros and cons of using one for your company:
| Pros | Cons |
|---|---|
| ✔️ Convenience — overdrafts are a useful way to cushion the blow of unforeseen expenses. | ❌️ Expensive — the costs can add up quickly, even if you never use the service. |
| ✔️ Flexibility — the money is yours to do with as you like. | ❌️ Account and credit barriers — overdrafts are usually only for those with good or excellent credit ratings. |
| ✔️ Simplicity — interest is only due if you use the overdraft service. | ❌️ Temptation to spend — having an overdraft might tempt you to spend more than you have. |
Best business accounts with overdrafts — reviews
The best overdraft, and business bank account, for you will depend on a few things. The size and type of business you own, your annual profits, and the reason you need the extra buffer. Here we look at some of the best options to choose from.
It's always worth checking the Financial Conduct Authority (FCA) website to make sure a bank has a UK licence and that's it's covered by the Financial Services Compensation Scheme (FSCS).
1. Starling Bank — Most-loved business account with overdrafts in the UK
Digital accounts offered by Starling Bank are wildly popular in the UK. Their updated take on conventional banking provides all the same safe features and services as brick-and-mortar banks, but in a more convenient, paperless format.
Starling's business overdrafts range from £1,000 to £50,000, and the interest rate is either 15%, 10%, or 5% EAR (the average annual percentage rate).
The arranging cost is 1.75% of the amount of credit available to you, with a £50 minimum. Starling, unlike some other online banks, is completely regulated and provides financial services to more than 450,000 companies in the United Kingdom.
The Starling Business Bank account offers the basics, but the award-winning challenger bank shines with the extras, tools, and services, some of which may be indispensable to a startup or small company.
Download the Starling Bank app from the App Store or Google Play, or apply for a business account directly on their website. A Starling Bank account might be yours if your company qualifies and your application is approved.
2. Metro Bank — Next-best overdraft business account
The overdraft fee is proportional to the amount actually used by the online account customer. A £50 arrangement charge and a variable interest rate of 10% EAR apply to all arranged overdrafts up to £25,000. Rates for overdrafts in excess of £25,000 are negotiable upon request.
Although it only opened its first branch in 2010, Metro Bank has rapidly expanded across the South East of England, where it now serves over a million business customers. Metro Bank became a challenger bank when it launched for business after no other bank had done so in over 150 years.
Metro now provides business current and savings accounts in addition to business financing. When compared to the other main UK banks, Metro Bank came out on top in an impartial assessment of business current account providers.
Both small enterprises and multinational conglomerates may open accounts. With a balance of £6,000 or more, you may enjoy free monthly account maintenance, in addition to 30 free UK transactions.
Monthly costs of £6 + UK transaction fees of £0.30. Your account may be opened and managed over the phone, online, or in person at any of our seven locations every week.
3. Santander — Established British business account with overdrafts
Santander provides overdrafts to companies with limits ranging from £500 to £25,000.
The average APR for an overdraft is 10%, and the arrangement charge is 1% of the overdraft, with a £50 minimum.
The Spanish Santander Group founded in 1857 owns the UK's Santander bank. From Santander's first entry into the UK in 1988 until the completion of their rebranding at the end of 2010, there were several mergers.
Today, they are one of the largest financial services companies in the world, serving more than 24 million customers through 500+ locations in the United Kingdom alone. Cater Allen Private Bank is Santander's other private banking option.
Both new and existing companies may open a Santander account and make use of the bank's overdraft services. Both new companies and account switchers are eligible for free or subsidised banking for a period of 12 months.
Monthly fees range from £7.50 to £12.50. Your account information is always accessible through the website and mobile app. The 123 Business Current Account provides annual cashback of up to £300.
Clubs, societies, and nonprofit organisations may also make use of their free everyday banking services by opening a Treasurer's Current Account.
4. Barclays — Popular UK overdraft business account
Barclays provides unsecured company overdrafts of up to £50,000.
The minimum fee to borrow money is £95, and interest rates range from 0% to 100% of the Bank of England's base rate. Interest is only charged on overdrafts, and the whole debt may be repaid whenever you wish.
Barclays is a classic British bank that has been around since the 1700s; it was an early adopter of both automated teller machines and debit cards. They are one of the four largest banks in the country, with more than 1,500 locations catering to businesses of all shapes and sizes.
Overdrafts in the range between £1,000 and £25,000 may be obtained for businesses. Overdraft interest rates range from 13.40% for balances between £1,000 and £5,000 to 8.43% for balances between £20,000 and $25,000.
Also variable are the arrangement fees, which range from a flat rate of £95 to £295 for limits up to £15,000 to a rate of 1.6% to 2.5% of the agreed limit for overdrafts above that threshold. Rates and fees may be negotiated for overdrafts in excess of £25,000 (up to £50,000) for firms that apply.
5. NatWest — Trustworthy business account with overdrafts
Overdrafts from NatWest may range from £500 to £25,000 for firms with annual revenues of less than £2 million and last for a period of 12 months. There is a range of 11.73% to 11.62% in interest costs, and arranging fees range from £50 to £375.
If a company has a revenue of above £2 million or has access to a Relationship Manager, they may be eligible to borrow up to £50,000, double the standard business loan amount of £25 000.
As for their record: as one of the “Big Four” UK commercial banks, NatWest securely serves the financial needs of one in four companies in the country. Originally founded in 1968 as National Westminster Bank, they are now a subsidiary of the considerably bigger NatWest Banking Group, which also includes the Royal Bank of Scotland and the Ulster Bank.
6. HSBC — International business account with overdrafts
One of the largest banks in the UK, I’ve written about HSBC in the past, on several occasions.
Overdrafts of up to £30,000 are available to companies via HSBC. Despite having begun in Hong Kong in 1865, HSBC business account has become one of the Big Four Banks, with branches all over the United Kingdom.
After more than 150 years in operation, the company has more than 15 million commercial clients and more than 600 locations in the United Kingdom alone. The initials stand for The Hong Kong and Shanghai Banking Corporation Limited, thus the abbreviation HSBC.
An annual arrangement cost of 1.75% of the agreed amount, or a minimum of £25 is added to the interest rate of 12.85% EAR which is changeable. A business overdraft may be set up for anything from one month to one year, with annual reviews.
Daily compound interest is levied on the amount that is actually drawn down. When the overdraft is authorised, an arrangement fee will be determined.
7. Royal Bank of Scotland — Well-reviewed business overdraft account
Businesses with annual revenues of less than £3 million and those with annual revenues of between £3 million and £25 million are eligible for arranged overdrafts from Bank of Scotland ranging from £500 to £25,000.
The Bank of Scotland was established in 1695, making it the oldest and hence also the first Scottish bank.
They are a well-known high street bank that joined the Lloyds Banking Group in 2001 with Lloyds Bank and others, giving them access to 320 years' worth of banking expertise to share with its more than 150,000 business customers in the United Kingdom.
The Royal Bank of Scotland is a separate financial institution from the Bank of Scotland.
For overdrafts between £500 and £5,000, the arrangement cost starts at £12 per month, while for overdrafts between £5,001 and £25,000, it is 1.99% per year (£120 minimum). If your company needs an overdraft of more than £25,000, which can be integrated with accounting software.
An overdraft of £5,000 or less may be opened for free, however, there is a £12 monthly cost for its use. An annual fee of 1.99% is assessed for overdrafts from £5,000 to £25,000. A rate of interest of 10.85% per year over the Bank of England Base Rate will be applied. Money earns interest only while it is being used.
8. TSB — Top business account with overdrafts for good fees
The maximum overdraft limit from TSB is £7,000, and overdraft fees begin at 10.65% EAR representative after that. Furthermore, there is an arrangement fee ranging from £150 to £250.
TSB has 550 locations in England, Wales, and Scotland and serves 4.6 million individual and corporate clients.
Established in 1985 as Trustee Savings Bank plc, TSB continues to provide a variety of banking services, including current accounts, savings accounts, debit and credit cards, loans, and financing for companies and nonprofits.
TSB provides two types of accounts, one tailored to small enterprises and another to nonprofits. The business account costs £5 per month and is accessible online and through smartphones around the clock.
If your account balance at TSB is above £10,000, the monthly charge will be waived. If account holders who switch to our bank comply with our terms and conditions, we will waive our monthly service fee for 25 months.
You may get an unsecured loan for up to £25,000 and a loan of up to £100,000 for your company, with terms ranging from 1 to 25 years. The sample annual percentage rate (APR) for this loan is 9.94%.
The loan's conditions, amount, and duration all go towards the arrangement fee's range from £100 to £250. New applications for TSB business credit cards are not being accepted at this time.
9. The Co-operative Bank — Popular business account with overdrafts for easy use
The Co-operative Bank was founded in Manchester in 1872 as an ethical financial institution. The bank does not put money into companies that engage in things like selling weapons, using fossil fuels, or experimentation on animals because of ethical concerns.
Any company can apply for an overdraft, secured or unsecured, up to £250,000. The Bank of England Base Rate is used to determine the variable interest rate. The current rate for prearranged overdrafts is 6.28% (representative EAR changeable). In addition, there is a £50 minimum overdraft arrangement cost of 1.5%.
Borrow between £1,000 and £250,000 for a repayment period of 1-15 years for company financing and loans. There is a monthly interest payment that fluctuates. A Charge Card is available to business users of the Co-operative for a monthly cost of £2 per card, with an interest-free period of up to 48 days.
Best business account with overdrafts — Buying Guide
A business overdrafts works in a similar way to a personal overdraft with a few key differences, which I'll discuss here.
What is a business overdraft account?
In the same way that a personal overdraft enables you to keep spending even when your bank account balance drops below zero, a business overdraft does the same thing for a company account.
You may choose to have one as part of your account, just as with a personal account. There are a number of expenses and payments that must be made, so think carefully about your alternatives before applying.
How do you open a business overdraft?
To begin with, the bank you choose will need to verify your identity and address in order to do necessary background checks. In addition to a picture ID (passport, national identification photocard, or driver's licence), you will need to provide proof of your UK residence in one of the following ways:
- Proof of payment, such as a recent bank or credit card statement (not more than three months old) that was not printed online
- Mortgage statement (not printed from the internet and no older than 12 months)
- Newer than 12 months council tax bill, payment book, or exemption document
- Note or bill from a utility company (must be no more than six months old)
- A third party's authority over your account
Who can get a business account with an overdraft?
Business accounts are available to both new and existing companies. Banks often charge a monthly or yearly fee, however many will waive these charges for for new clients and startups.
Similar to individual bank accounts, most business accounts allow deposits, withdrawals, debit card transactions, and overdrafts.
Overdraft protection methods
A fee is often charged each time you dip into an overdraft. To avoid this, always make sure you have enough money in your account – and if you do need to use your overdraft, always check what fees will apply first.
It may also be possible to link your current account to a credit card or a savings account. This could enable you to use the bank-up money, if you account runs into an expensive overdraft.
Leading business account with overdrafts for small businesses: The Verdict
Is an overdraft account the best option for small businesses to get a loan?
Business overdrafts may be a smart option to borrow money, but only if the conditions and interest rates are favourable. After factoring in fees and interest, an unsecured business loan or business credit card is likely to be the more cost-effective option.
Overdrafts for businesses are similar to personal overdrafts in that they should not be used often but are helpful to have if unexpected expenses arise.
When applying, take extra precautions and ensure you fully comprehend all associated costs and fees (especially those associated with exceeding your credit limit).
