Overdraft

An overdraft allows a business to spend more than it has in its bank current account, up to a limit agreed with the bank. The account becomes overdrawn, meaning that the business owes the bank money. Money subsequently paid into the account reduces the amount owed.

An overdraft allows a business to spend more than it has in its bank account, up to an agreed limit. Unlike a loan, it does not provide a separate fixed lump sum. The business uses the facility as needed and reduces the amount owed when money enters its account.