Working capital loans and business overdrafts both put cash into your business. But they work differently, cost differently and suit different situations. The wrong choice can cost you thousands in unnecessary interest. Here is the straight comparison so you can pick the right one.
| Feature | Working capital loan | Business overdraft |
|---|---|---|
| Structure | Fixed lump sum, repaid over set term | Revolving credit line, draw and repay as needed |
| Term | 6-24 months (fixed) | 12 months (renewable) |
| Interest charged on | Full loan amount for entire term | Only the amount drawn, only while drawn |
| Repayments | Fixed weekly or monthly | Flexible, minimum repayment applies |
| Access to funds | One-off disbursement | Draw and repay repeatedly |
| Typical rates | 12-25% p.a. | 14-30% p.a. |
| Facility fees | Establishment fee only | Establishment fee + line fee on limit |
| Property required | No (under $150K) | No (under $150K) |
| Best for | Known one-off expenses | Ongoing cash flow management |
You borrow a fixed amount. The lender deposits it into your account. You repay it in equal instalments (usually weekly) over the agreed term. Interest is calculated on the full loan amount from day one. If you borrow $50,000 at 18% over 12 months, you pay interest on $50,000 for the full 12 months, even if you only needed the money for 3 months.
There is no ability to redraw. Once you repay $10,000, that $10,000 is gone. If you need more, you apply for a new loan. Read the full details in our working capital loan guide or download the working capital loan factsheet.
You get approved for a limit. You draw funds when you need them, repay when cash comes in. Interest accrues daily on the drawn balance only. If you have a $50,000 limit and draw $20,000, you pay interest on $20,000. When you repay $15,000 next week, you only pay interest on the remaining $5,000. The $45,000 in available limit is ready to use again without reapplying.
There is a line fee (1-2% p.a.) charged on the full limit regardless of usage. That is the cost of having the facility available. See our business overdraft page or overdraft factsheet for full details.
All rates and costs in this article are indicative and based on current non-bank lender pricing as at May 2026. Your actual rate depends on your business profile and the lender selected.
A working capital loan makes sense when you know exactly how much you need and for how long.
An overdraft suits businesses with ongoing, irregular cash flow gaps.
Simple rule: if you need money once for a known purpose, get a loan. If you need money regularly in varying amounts, get an overdraft.
You pay interest on the full $50,000 for 12 months even though you only needed the funds for 3 months. Some lenders allow early repayment, but break fees may apply.
The overdraft costs $5,500 less in this scenario, despite the higher interest rate. The savings come from paying interest only on the drawn amount and only while it is drawn. Once you repay, interest stops.
When you need the full amount for the full term, the working capital loan is $2,750 cheaper because the base rate is lower. The overdraft's higher rate and line fee add up over 12 months of continuous use.
| Your situation | Best product | Why |
|---|---|---|
| Need funds for a known, fixed period | Working capital loan | Lower rate, predictable repayments |
| Need funds on and off throughout the year | Business overdraft | Pay interest only when drawing |
| Covering a specific purchase (stock, tax, equipment) | Working capital loan | Fixed amount, fixed purpose, fixed term |
| Managing ongoing cash flow gaps | Business overdraft | Flexibility to draw and repay as needed |
| Not sure how long you will need the funds | Business overdraft | No penalty for early repayment of drawn balance |
| Need predictable weekly repayments for budgeting | Working capital loan | Fixed repayment schedule |
Not sure which one fits your business? Use our borrowing calculator to see what you qualify for, or check your eligibility for both products in one step. We can also structure a combination of both if that is what your cash flow needs.
For more detail on each product, read the working capital loan factsheet and the business overdraft factsheet, or compare all options side by side.
OverdraftMe compares working capital loans and business overdrafts across 50+ lenders. We will tell you which one saves you more based on your actual situation. Free broker service.
Get a free comparison →A working capital loan gives you a fixed lump sum repaid over a set term (6-24 months) with interest on the full amount. A business overdraft is a revolving credit line where you draw and repay as needed, paying interest only on what you use.
It depends on how long you need the funds. If you need $50,000 for the full 12 months, a working capital loan is usually cheaper because the rate is often lower. If you only need funds for 2-3 months then repay, an overdraft costs less because you stop paying interest once you repay.
Yes. Many businesses use both. A working capital loan for a specific purchase or project, and an overdraft for ongoing cash flow management. Lenders assess your capacity to service both when you apply.
Not always. Non-bank lenders offer unsecured working capital loans up to $150,000 based on cash flow and credit history. Larger amounts or bank lenders may require property security.
Through non-bank lenders, both products can be approved within 24 hours. Some lenders return decisions in as little as 1-2 hours. Bank applications typically take 2-6 weeks.
Everything you need to know - eligibility, rates, lenders and Payday Super 2026.
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