Still Using an Overdraft?

Overdrafts used to be the go-to option for many UK small businesses. Everyone knew about them, they were easy to get approved for, and they helped with the ups and downs of daily cash flow. But the pandemic changed that.

According to UK Finance, annual overdraft applications dropped from around 148,000 to just 42,000 during COVID. As of 2024, they’ve only partially rebounded to about 59,000 a year, with a total overdraft stock of £8.3 billion.

The reason overdrafts fell out of favour is pretty simple: Government-backed lending like CBILS and Bounce Back Loans were made widely available and heavily promoted. They were cheaper, more accessible, and for many businesses, a better fit. It opened the door for many businesses to explore more suitable alternatives to overdrafts.

Smarter ways to fund cash flow

Today, government support continues through the Growth Guarantee Scheme, and the market is full of non-bank lenders offering lending products tailored specifically for small businesses. These alternatives almost always come with more flexibility and better value than an overdraft.

Take a business line of credit, for example. It works a lot like an overdraft, but with a bigger credit limit and lower rates. Or consider invoice finance, which lets you unlock cash tied up in unpaid invoices – ideal for smoothing cash flow without taking on unnecessary debt.

One of the key problems with overdrafts is how unreliable they can be. Banks can change your limit with little notice, often reacting to market changes or your latest financials. Businesses have had their overdrafts removed altogether, and in some cases been entirely de-banked. This unpredictability can create financial instability, particularly if your business relies on an overdraft to cover routine expenses.

While overdrafts might feel familiar, they’re not always the most cost-effective choice as your business grows. Interest charges can add up, and unpaid balances can become a drag on progress. With so many smarter funding options available, clinging to overdrafts just doesn’t make sense.

It’s true that other finance options besides overdrafts can be more complex to understand and negotiate. This is why many businesses choose to work with brokers like Risecap.

At Risecap, we take the time to understand your business and offer bespoke business finance solutions that remove barriers to growth. With care and attention at the heart of what we do, we want you to feel confident and supported during every step of your funding journey.