While both business loans and overdrafts involve borrowing money, they’re set up differently to meet different needs.
Business loan
A business loan has a set lending term and can suit small and large capital purchases. With a business loan you will make regular agreed repayments.
Business overdraft
Overdrafts are flexible short-term cash flow solutions that can help with the ups and downs of business by covering trading or seasonal cash flow cycles or managing working capital, e.g. paying suppliers or purchasing stock. Unlike business loans, overdrafts do not have set repayment commitments. You can draw on the funds in your overdraft, up to the agreed limit, and make deposits when funds are available. There is a fee that is applied to the limit, but you’ll only pay interest on the overdraft amount you use, not on the total limit.