A business line of credit and a business overdraft are close cousins. Both are revolving limits you draw on and repay repeatedly, and both charge interest only on the balance you have used, not the full limit. The main difference is structural: an overdraft is attached to your bank transaction account, while a line of credit is a standalone facility you can compare across lenders without moving your everyday banking. For a recurring cash-flow gap, that difference is mostly about competition and cost.
Are a line of credit and an overdraft the same thing?
Functionally they behave almost identically. You have a limit, you dip into it when cash is tight, you repay when it is not, and the limit refills as you go. Neither is a lump-sum term loan: both are designed for gaps that come and go rather than a single purchase. If you have read our guide on how a business line of credit works, the mechanics of an overdraft will feel familiar.
The differences are in where the facility sits, who offers it, and what it costs, and those differences are worth real money over a year.
The core difference: attached vs standalone
An overdraft is bolted onto your business transaction account. That makes it convenient, it draws automatically when your balance goes below zero, but it also generally ties you to the bank that already holds your account. If you want an overdraft from a different bank, you usually have to move your banking there.
A line of credit is a separate facility that sits alongside your existing accounts. Because it is standalone, you can shop it around. You can hold your everyday banking with one institution and your line of credit with whichever lender prices it best. For a broker, that is the whole point: it opens the facility up to a panel of lenders rather than a single incumbent.
Business line of credit vs overdraft compared
Here is how the two stack up on the things that actually affect your decision.
Business line of credit vs business overdraft
| Feature | Business line of credit | Business overdraft |
|---|
| What it is | A standalone revolving limit | A revolving limit attached to your transaction account |
|---|
| Where it sits | Alongside your existing accounts | Bolted onto your bank account |
|---|
| Interest charged on | The drawn balance only | The overdrawn balance only |
|---|
| Who offers it | Banks and non-bank lenders | Usually the bank that holds your account |
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| Do you move your banking | No | Usually yes, for a different bank |
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| Ongoing cost when unused | A line or service fee | A facility or account fee |
|---|
| Indicative pricing (July 2026) | From around 8 per cent per annum, secured | From around 14.5 per cent per annum, into the mid-20s |
|---|
| Best suited to | A recurring gap you want to shop around | A small buffer on your trading account |
|---|
Pricing rows are indicative market ranges as at July 2026, drawn from scans of Australian lenders. They are context, not offers: the real number is the one a lender quotes on your file.
What each one costs
Both carry two kinds of cost: interest on the drawn or overdrawn balance, and an ongoing fee for holding the limit available. As at July 2026, market scans put business overdrafts from around 14.5 per cent per annum, ranging into the mid-20s, with secured overdrafts lower. Standalone lines of credit commonly start from around 8 per cent per annum for secured facilities, higher when unsecured. Both also charge a facility, line or account-keeping fee whether or not you draw.
Because an overdraft usually comes from your existing bank, you tend to take the number that bank gives you. A line of credit lets you compare, and comparison is where the saving lives.
Which is cheaper for a recurring gap?
There is no universal answer, but the logic is straightforward. If the two facilities are priced similarly, convenience favours the overdraft and competition favours the line of credit. Over a year, the ability to compare lenders on a standalone facility often beats the convenience of an overdraft you did not shop around. The one that wins is the one that prices your specific file best, and you only find that out by comparing.
Whichever you choose, size the limit to what you would realistically draw, not the largest number offered, because the ongoing fee runs on the limit whether you use it or not.
When an overdraft still makes sense
An overdraft is a genuinely good fit when you want a small buffer sitting quietly on your trading account, drawing automatically for the odd short week, and you are happy with your current bank's pricing. For a modest safety margin tied to your everyday account, the convenience can outweigh the value of shopping around. For a larger or recurring working-capital need, the case for comparing a standalone line of credit gets stronger.
How a broker helps you compare
You tell us how your cash flow moves through the year and what the limit is for. We take your file to the lenders on our panel whose appetite fits, and compare what they return on limit, interest rate, line fee and flexibility, including against your current overdraft if you have one. You decide. When you are ready, compare a line of credit against your overdraft, or read more on the line of credit page. If your cash is tied up in unpaid invoices rather than a seasonal gap, invoice finance may be the better fit.
Reviewed by the 121 Brokers credit team. General information only: not financial, legal or tax advice, and it does not consider your objectives, financial situation or needs. Rate and fee ranges are indicative market observations, not promises, quotes or offers. 121 Brokers arranges business-purpose finance only and is a broker, not a lender. Approval, limits, rates, fees and timing are determined by the lender and subject to its credit criteria.
