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| Use case | What to test |
|---|---|
| A few days between payroll and customer receipts | The cost of an arranged buffer and the reliability of the incoming payment. |
| Seasonal stock spending | Whether the facility lasts through the full season and how it is reviewed. |
| A machine used for several years | Compare asset or term finance with scheduled debt reduction. |
| An account permanently at its limit | Review cash flow and existing debt before increasing the facility. |
Arranged borrowing is different from exceeding a limit
An approved overdraft has a facility agreement. Going beyond that limit, or allowing an account to become overdrawn without an arrangement, can involve different fees and consequences. Check the account terms rather than assuming that every debit will be honoured.
Overdraft and line of credit terminology can overlap. Focus on how money is accessed, where receipts are paid, how charges work and when the balance must be reduced.
Follow a trading cycle through the account
An overdraft linked to the operating account allows eligible payments to take the balance below zero within the agreed limit. Receipts paid into that account reduce the amount drawn. This can fit a recurring timing mismatch where the account moves in and out of borrowing as customers pay.
Map the account's lowest point rather than simply adding up monthly expenses. Include payment dates for wages, rent, tax and suppliers alongside expected customer receipts. If receipts are paid into another account or payment platform, allow for the time before they are available in the overdraft account.
A seasonal wholesaler may borrow to build stock and reduce the balance as the stock sells. A business using the overdraft to buy a machine can tie up that same capacity for years. Compare a scheduled asset loan for the machine so the cash buffer remains available for its intended purpose.
Size the buffer around a plausible delay
Use the forecast's peak shortfall as a starting point, then test late receipts and unavoidable additional payments. Ask whether the requested limit is intended to cover the normal cycle or a specific temporary event. An unnecessarily large limit can have a cost where fees depend on the limit.
Do not assume an unapproved excess will be paid. If the forecast shows the limit being reached, discuss the position with the provider before the due payment. Keep a view of pending debits so an apparently available balance is not mistaken for spare capacity.
Compare four parts of the price
Request the interest calculation, establishment fee, ongoing facility fee and any account or excess-limit charges. Establish whether fees are based on the approved limit or the amount used. A facility advertised with interest only on the drawn balance can still have a cost when it is unused.
Ask for the annual cost of a realistic pattern of use. A business drawing heavily for two months needs a different comparison from one using a small amount most weeks.
Calculate cost from the expected drawn balance
For an illustration only, $20,000 drawn for 30 days at 12% per year produces about $197.26 of interest using a simple 365-day calculation. Add the actual facility and account fees. The lender's agreement may use different calculation and posting rules, so this is a comparison method, not a quote.
Repeat the calculation for the expected periods of use. A facility drawn for most of the year can cost much more than one used for a few short gaps, even where their limits are identical. Include charges incurred when the balance is positive or the facility is unused.
Compare this usage model with a line of credit or short term loan on the same cash need. Account convenience may have value, but distinguish it from a claim that an overdraft is always cheaper because interest is charged on drawn funds.
Prepare for renewal while the account is in good order
Keep current accounts, cash forecasts and debtor information ready for any review required by the agreement. Explain persistent borrowing and how it will reduce. Evidence of a seasonal peak followed by repayment tells a different story from a limit that has remained fully used for months.
If part of the balance is permanent, discuss whether scheduled finance could address that portion while leaving an appropriate working buffer. Test the combined repayments first. Moving the balance to a term loan and then drawing the overdraft again can increase total debt rather than solve the original problem.
What happens at review?
Read the renewal, review and demand provisions. Find out what financial information is required, when the lender can reduce or suspend the limit and how outstanding debt would then be repaid. The facility is not a substitute for cash held without conditions.
Security and guarantees depend on the offer. If the overdraft shares security with another business loan, ask how closing or refinancing one facility affects the other.
Test whether the next receipt clears the gap
For illustration, a business pays $12,000 in wages before collecting a $20,000 invoice. If another $6,000 of rent and supplier payments falls due first, the borrowing need is $18,000, assuming no opening cash. The customer payment then leaves only $2,000 before interest, fees and the next round of bills.
Now move the receipt back a week. Identify the extra deductions that occur and whether the agreed limit still covers them. This is more useful than choosing a limit from the size of the invoice alone.
Check the balance after each normal trading cycle. Repeated borrowing and repayment can be a sensible use of an overdraft. A balance that keeps rising needs a review of collections, stock, pricing and costs before an increased limit is treated as the solution.
Bank overdraft rates and facility fees
Published examples checked on 10 October 2026. These products have different eligibility and security conditions, so the figures are not a cheapest-lender ranking. Variable rates and fees may change; request a written quote.
| Bank / product | Published interest rate | Charge for keeping the limit |
|---|---|---|
| Westpac Business Overdraft | From 8.36% p.a.; security and assessment affect the quote | Line fee 1.20% p.a. of the limit, charged monthly; setup and other charges may apply. |
| CommBank Business Overdraft | Secured from 9.00%; unsecured from 15.05% p.a. | Line fee 1.70% p.a. on the limit or outstanding balance, whichever is greater; setup charge may apply. |
| NAB QuickBiz Overdraft | 16.50% p.a. variable; $5,000–$50,000 limits | Service fee 1.75% p.a. of the limit, charged monthly. |
| ANZ unsecured business overdraft | Current rate requires a quote; online limits up to $200,000 | Annual facility fee: $250 below $10,000; $400 at $10,000–$19,999; $600 at $20,000–$49,999; 1.70% from $50,000. No upfront fee published. |
For a purely illustrative $50,000 limit that remains $20,000 drawn for a year, 1.20% on the limit is $600 before interest. At 10% simple annual interest, a constant drawn balance adds $2,000: $2,600 together, before other charges. Actual balances, compounding and billing dates change that result.
A separate business line of credit can also fund repeated gaps, but may charge weekly service fees or require principal reduction after each draw. Compare the repayment process and annual standing cost, not just whether the product is called revolving.
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