Both are revolving credit facilities. The key difference: an overdraft is attached to your business transaction account. A line of credit is a standalone facility, separate from your everyday banking. Both charge interest on drawn balance only.
Side-by-side comparison
| Feature | Business Overdraft | Line of Credit |
|---|---|---|
| Linked to transaction account | Yes | No (standalone) |
| Credit type | Revolving | Revolving |
| Interest charged on | Drawn balance only | Drawn balance only |
| Access to funds | Via your everyday account | Transfer to your account |
| Typical non-bank rate | 14.55% to 25% p.a. | 14.55% to 25% p.a. |
| Max unsecured | $150,000 | $150,000 |
| Repayment structure | Flexible, no fixed schedule | Flexible, minimum monthly |
| Best for | Daily cash flow gaps | Project-based funding |
In practice, many non-bank lenders use the terms interchangeably. The product you receive may be called an "overdraft" or a "line of credit" depending on the lender, but the mechanics are often identical: you get a credit limit, you draw what you need, and you pay interest only on what you use.
Key point: With banks, the distinction matters more. A bank overdraft is tied to your bank account. A bank line of credit is a separate facility. With non-bank lenders, both products function the same way in most cases.
When an overdraft is the better choice
An overdraft works best when you need to cover regular cash flow gaps in your daily business operations. It sits on your transaction account, so you can spend directly without transferring funds.
- Covering wages when client payments are 14 to 30 days late
- Paying suppliers on time while waiting for invoice settlement
- Managing seasonal dips where revenue drops for a few weeks each quarter
- Handling unexpected costs like equipment repairs or urgent stock orders
The main advantage is convenience. Money is available instantly in your working account. No transfer needed. No separate application each time you need funds.
When a line of credit is the better choice
A line of credit suits businesses that need funds for specific purposes, separate from daily operations. Because it is a standalone facility, it keeps your project spending separate from your everyday cash flow.
- Funding a specific project with defined costs and a known timeline
- Buying stock in bulk to take advantage of supplier discounts
- Bridging a gap between securing a contract and receiving the first payment
- Keeping project finances separate from your daily operating account
Cost differences between overdrafts and lines of credit
Through non-bank lenders, the cost is virtually identical. Both products charge interest on drawn balance, and the rates come from the same pricing schedule.
Typical costs for both products
Worked example: $50,000 facility, overdraft vs line of credit
Facility limit: $50,000 (same for both)
Average drawn over 12 months: $20,000
Rate: 18% p.a.
Annual interest: $20,000 x 18% = $3,600
Establishment fee (2%): $1,000
Total first-year cost: $4,600
The cost is the same regardless of whether you choose an overdraft or a line of credit. The difference is how you access and manage the funds, not how much you pay.
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Get my indicative quote →Can you have both an overdraft and a line of credit?
Yes. There is no restriction on holding both products at the same time. Some businesses use an overdraft for daily operations and a line of credit for a specific growth project.
The key consideration is serviceability. Each facility requires its own assessment. Your combined borrowing needs to be supported by your revenue and credit profile. If your business turns over $30,000 per month, you could potentially hold a $40,000 overdraft and a $30,000 line of credit, depending on your other financial commitments.
Talk to your broker about structuring multiple facilities. Sometimes a single larger facility is simpler and cheaper than two smaller ones. Other times, keeping them separate gives you better control over different parts of your business.
For more detail, read our full comparison of overdraft vs line of credit. You can also review the business overdraft product page, the line of credit product page, or compare all overdraft options.
Rates disclaimer: All rates mentioned are indicative only and subject to lender assessment, credit approval, and individual circumstances. Rates may change without notice. Contact us for a personalised quote based on your business profile.
Frequently asked questions
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