ask for early payment, payroll arrives before invoices are settled, or a sudden order demands extra stock. Seasoned owners know these gaps aren’t a sign of failure; they’re a feature of doing business. What matters is how you bridge them.
One of the most underused tools is sitting inside many current accounts already: an overdraft or revolving credit line. Used well, it provides working capital at a moment’s notice and interest applies only to what you draw.
In this article, we’ll look at how these facilities work, the costs to watch, and the habits that keep them efficient rather than expensive.
What an Overdraft or Credit Line Really Is
An overdraft is a pre-sanctioned limit that lets you withdraw more money than you currently have in your business current account. Instead of applying for a new business loan every time you need short-term cash, you simply dip into this limit as needed and repay when your receivables arrive.
A revolving credit line works the same way: you borrow, repay, and borrow again within the approved ceiling.
Unlike term loans, you’re not locked into fixed monthly EMIs. Interest is charged only on the exact amount you use and for the actual number of days the funds are outstanding—making it a flexible, pay-for-what-you-use option.
Why It Beats the Last-Minute Loan
When a cash-flow crunch hits, speed matters more than anything. A traditional loan involves paperwork, credit assessments, and processing time that can stretch into days or weeks.
An overdraft or credit line is already set up. You can transfer funds online or swipe your debit card as if you were spending your own balance.
That immediacy is invaluable when you need to cover payroll on Friday or secure a bulk-buy discount today. Because you pay interest only on the borrowed amount and only for the period used, the effective cost can be lower than a quick personal or business loan—especially if you repay within a few days.
When Businesses Rely on It
Overdrafts and credit lines shine in situations where timing, not profitability, is the challenge.
Manufacturers often need to buy raw materials before a large order is billed
Retailers stock up ahead of festive sales long before customers start paying
Service firms may face a sudden equipment repair or a client who stretches payment terms
In each of these cases, a revolving limit keeps operations running without forcing owners to juggle multiple small loans or expensive credit cards. The key is using it as a short-term bridge, not as a permanent funding source for expansion.
Choosing the Right Facility
Banks typically offer three main variations:
Secured Overdrafts – Backed by collateral such as fixed deposits, property, or other assets. They generally provide the lowest interest rates and highest limits.
Unsecured Overdrafts – Granted based on your cash flow and credit history. These require no collateral but usually carry slightly higher rates and stricter eligibility checks.
Cash Credit or Revolving Business Lines – Designed for companies with ongoing working-capital needs and reviewed annually.
Selecting the right option depends on how predictable your receivables are and whether you can pledge an asset. A business with steady inflows and strong credit may prefer an unsecured limit for speed, while a firm with significant fixed deposits might save on interest with a secured overdraft.
Costs, Risks, and Bank Expectations
Overdraft interest rates are often a few percentage points higher than standard business loans, though the “pay only on what you use” feature offsets this for short periods. Banks may also charge processing or annual renewal fees, and penalties can apply if you exceed the limit or delay repayment.
Before sanctioning or increasing a facility, lenders review your current-account turnover, audited financial statements, and credit profile. Maintaining steady deposits, disciplined withdrawals, and a clean repayment record can help you negotiate better rates and higher limits over time.
Smart Habits to Keep It Affordable
Treat the overdraft as a precision tool, not a fallback for chronic cash shortages.
Monitor usage daily with your bank’s digital dashboard
Clear the balance quickly to minimize interest and strengthen your credit profile
Review the limit annually; if your business has grown, you might secure a lower rate or a larger cushion
And always compare offers across banks, competition can work in your favor.
Final Thoughts
Cash-flow gaps are inevitable, but they don’t have to become crises. A well-managed overdraft or revolving credit line turns an ordinary current account into a quiet, always-ready source of working capital.
Used with discipline, it provides speed, flexibility, and cost control that one-off loans rarely match. For businesses that want to stay agile and sleep easier when receivables lag, this is one financial tool worth a serious look.
