Business Overdraft vs Line of Credit: 2026 Cost Guide

A business overdraft lets your transaction account go below zero up to an agreed limit. A line of credit is a separate revolving facility you draw from into your account. Both charge interest only on what you use, but you also pay for the limit, and overdrafts are usually repayable on demand. Choose on how often, how much and how long you'll need to draw.

This is general information, not financial product advice, and it doesn't consider your circumstances. Read the facility terms, fee schedule and any target market determination, and consider getting advice before you apply.

Overdraft vs line of credit at a glance

Based on lender information checked 17 October 2026.

How a business overdraft works

An overdraft is attached to your business transaction account. When the balance drops below zero, you're borrowing. Every deposit, from customer payments to card settlements, automatically reduces what you owe. NAB describes it as a revolving line of credit linked to your transaction account, with no formal repayments.

You pay for it in two ways:

• Interest on the overdrawn balance. NAB calculates QuickBiz overdraft interest daily on the funds used and charges it on the last banking day of the month. Published unsecured rates in October 2026 were 15.05% p.a. (CommBank), 16.45% p.a. (ANZ GoBiz) and 16.50% p.a. (NAB QuickBiz). Secured overdrafts cost less: CommBank's secured rate started at 9.00% p.a., and Westpac advertised from 8.36% p.a. depending on security.
• A fee for the limit. This is the cost many owners miss. Westpac charges a 1.20% p.a. line fee on the total limit, charged monthly; on a $10,000 limit that's $10.20 in a 31-day month. CommBank charges 1.70% p.a. on the higher of the limit or the balance. NAB QuickBiz charges a 1.75% p.a. service fee on the approved limit. ANZ says a fee is charged for the total limit.

Going over the limit costs more. CommBank says an overdrawing approval fee and an excess drawing interest rate may apply, and the line fee then applies to the full balance including the excess.

Repayable on demand

Overdrafts are generally on-demand facilities. The Banking Code says that for an overdraft or on-demand facility, a bank may not be required to give you any notice when it requires repayment. That's very different from a term loan, where a Code bank must give at least 30 days' notice of a missed payment before demanding full repayment. Banks don't usually call in a well-run overdraft without warning, but the right exists, so an overdraft shouldn't fund anything you can't repay quickly.

What overdrafts are for

business.gov.au describes overdrafts as suited to short-term gaps, not capital purchases or long-term financing. NAB lists the same limitation and adds that an overdraft can create false security and hide ongoing cash flow problems. An account that never returns to credit is a warning sign; our guide to tracking overdraft headroom and returning to credit sets out a plan.

How a business line of credit works

A line of credit is a revolving limit you can draw on, repay and draw again, paying interest only on what you've borrowed. Instead of letting your everyday account go negative, you move money from the facility into your account when you need it.

The details vary more than overdrafts do:

• Prospa: limits up to $500,000; interest calculated daily on the drawn balance at a fixed rate it doesn't publish; a weekly service fee of 0.046% of the facility limit; no establishment fee. Weekly minimum repayments cover interest and some principal plus the fee, and rise and fall with the balance. Prospa checks in every two years; if the facility isn't continued, the balance is repaid over a two- or four-year paydown period.
• Lumi: up to $1m, from 15.5% APR, weekly repayments; Lumi says there are no ongoing or early repayment fees.
• ScotPac: up to the lesser of $500,000 or 200% of average monthly sales, with a one-off establishment fee of 3% for limits of $50,000 to $200,000 and 2% above that, and a $5,000 minimum for further drawdowns.
• Liberty: $50,000 to $2m from 10.45% p.a., monthly repayments, and a fee of 1% p.a. on unused funds, plus establishment, monthly, annual review and discharge fees.

Two things set lines of credit apart in practice. First, scheduled repayments force the balance down, which is good discipline but less flexible than an overdraft in a slow month. Second, the review or check-in date matters: if the lender doesn't renew, you move to a paydown schedule.

The differences that matter

Overdrafts and lines of credit compared: main lenders (October 2026)

From each lender's own pages, checked 17 October 2026. Rates are published or from-rates, not offers. Order is not a ranking. "Not stated" means we couldn't find it on public pages.

Business overdrafts

Business lines of credit

Suncorp Bank, now part of the ANZ Group, is no longer accepting applications for business loans and finance, including overdrafts.

Illustrative cost over a seasonal year

Take a business whose busy season needs stock and staff months before customers pay. Its cash flow forecast shows these average drawn balances, peaking at $70,000 in November:

The average drawn balance across the year is $22,917. Here's what four structures would cost, using assumed rates modelled on published fee structures, not quotes:

What the numbers show:

1. Headroom costs money. Taking a $150,000 limit "just in case" added $1,190 a year in line fees without a dollar more being drawn.
2. Upfront fees dominate year one. The line of credit's lower rate and unused-limit fee made it the cheaper option from year two, but its establishment fee made it the dearer one in year one.
3. The headline rate understates the cost. A 15% overdraft cost about 21% of the money actually used once the line fee was counted.
4. A term loan fights the season. The $70,000 loan needs repayments of $6,252 a month from the first month, including February and March when the business has nothing to spare.

Run your own version with the 13-week cash flow forecast template. If the peak comes from stock bought ahead of a season, map the seasonal stock cash gap first.

When each one suits

How they compare with credit cards and invoice finance

Credit cards. A card is cheap only if you clear it in full. Our business credit cards guide compares the options, and if you were thinking of paying tax on a card, read our guide to the ATO credit card ban 2026 first.

Invoice finance. This works when the gap is caused by customers' payment terms. Illustrative example with assumed pricing: on $40,000 of invoices due in 45 days, an 80% advance of $32,000, a 1% service fee ($400) and a 12% p.a. discount charge for 45 days ($473) cost $873, which is about 22% a year on the money advanced. Ask for an actual quote, and compare it with chasing payment faster: see how to chase unpaid invoices and measuring days sales outstanding. Business loans without property explains factoring and confidential invoice discounting.

Fees to ask about before you sign

• Establishment or approval fee, and whether it can be added to the facility
• The line, service or unused-limit fee: rate, what it's charged on (limit, balance or unused amount) and how often
• The interest rate, whether it's fixed or variable, and what it's linked to
• Excess or over-limit interest and any overdrawing approval fee
• Monthly account or service fees, including on the linked transaction account
• Annual review, renewal, variation and discharge fees
• Missed-payment fees and minimum drawdown amounts
• Security registration and valuation costs, and whether a guarantee is required
• What happens at review: notice period, and the paydown schedule if the lender doesn't renew

Managing the facility well

• Size the limit from your forecast. Use the peak from your cash flow forecast plus a margin for a late payer, and stress-test your biggest customer paying late.
• Return to credit regularly. A balance that never clears means the facility is funding something permanent. Plan your way back with our headroom tracker.
• Separate the cash problem from the profit problem. If profit is up but cash is down, our cash bridge guide shows where it went.
• Shorten the cycle. Faster invoicing and better supplier terms reduce the limit you need; see the cash conversion cycle.

More planning tools are in our cash flow and getting paid guides.

Your rights if the lender changes or calls in the facility

Business facilities generally sit outside the National Credit Code, which ASIC says applies to credit for personal, domestic or household purposes, or residential investment, provided to individuals or strata corporations. That means the Code's consumer protections, including hardship provisions and comparison rates, may not apply to your overdraft or line of credit.

For banks that subscribe to the Banking Code, these small business commitments are relevant:

• On-demand facilities: a bank may not be required to give notice when it requires repayment of an overdraft or other on-demand facility.
• Payment defaults on other loans: at least 30 days' notice before demanding full repayment or enforcing.
• No catch-all clauses: standard form small business loans can't include a default based on unspecified "material adverse change".
• Ending a loan: if a loan with a scheduled end date won't be fully repaid by its regular repayments, and you're not in default, the bank must give at least three months' notice if it decides not to extend.

ASIC says unfair contract term protections cover standard form small business contracts, so one-sided variation or default terms can be challenged. The Banking Code applies to banks that subscribe to it. If your lender is a non-bank, ask which industry code, if any, it follows, and read its review and paydown terms closely. If a dispute arises, the Australian Financial Complaints Authority handles small business complaints against member lenders.

Key takeaways

• Both charge interest only on what you draw, but fees on the limit mean an oversized facility costs money even when it is untouched.
• Published unsecured overdraft rates in October 2026 were 15.05% to 16.50% p.a. at the major banks, with line fees of 1.20% to 1.75% p.a. of the limit.
• Overdrafts usually have no set repayments but can be called in on demand; lines of credit usually have weekly or monthly minimums and scheduled reviews.
• In our illustrative seasonal year, an $80,000 overdraft cost about 21% of the average amount actually drawn once the line fee was counted.
• Use a term loan or equipment finance for long-term purchases, and invoice finance when the gap is caused by business customers paying slowly.

Where to get help

• business.gov.au: how overdrafts, lines of credit and other finance work.
• Australian Banking Association: Banking Code of Practice: the commitments subscribing banks make to small business customers.
• Australian Financial Complaints Authority: free complaints about member lenders.
• Small Business Debt Helpline: free financial counselling on 1800 413 828.
• Australian Small Business and Family Enterprise Ombudsman: help with small business disputes.

Related tasks

Browse all guides in business banking and loans.