# Short-term business loans vs business overdraft — which one fits your need?

*Source: https://credicorp.co.uk/short-term-loan-vs-business-overdraft/*

Most directors who reach for short-term business finance reach for one of two things: a short-term business loan, or a business overdraft from their existing bank. Both products promise to fill a cashflow gap. Both are widely advertised. But they’re built around different mechanics and they genuinely suit different shapes of need. This article is the side-by-side comparison.

## The mechanics

A **short-term business loan** is a defined lump sum, drawn on a single day, repaid in scheduled instalments over a fixed term. You know the start, the end, the total cost, and each individual repayment up front. The cost is fixed — borrow £300 for 30 days at the agreed rate and the cost is the same whether or not your cashflow improves halfway through.

A **business overdraft** is a credit limit on your business current account. You can take the account balance below £0 up to the limit, at any time. Interest accrues daily on the negative balance. The cost is variable — pay back faster, pay less interest.

## Where the short-term loan wins

- **A specific named purchase.** If you know you need £4,000 for a piece of equipment on Friday, a short-term loan is the right tool. You know what you’re borrowing for, you know exactly what it’ll cost, you know exactly when you’ll have repaid it.

- **Predictability for budgeting.** A fixed schedule is easier to plan around than an open-ended overdraft balance.

- **Faster to arrange.** A short-term business loan from a fintech lender typically goes from application to funds in 24-48 hours; a new business overdraft from a high-street bank typically takes 2-6 weeks.

- **Not subject to bank withdrawal.** A formal short-term loan can’t be “called in” mid-term the way an on-demand overdraft can.

## Where the overdraft wins

- **Genuinely uncertain need.** If you don’t know whether you’ll need £500 or £5,000, an overdraft sized at £5,000 gives you the optionality and you only pay for what you actually use.

- **Lower headline rate.** A high-street bank business overdraft is typically cheaper in % terms than a fintech short-term loan — though faster setup and other features sometimes outweigh that.

- **Integrated with your bank account.** No separate platform to manage; the overdraft just sits there as part of your existing account.

## Where the comparison gets blurry — Credicorp Flex

Credicorp’s revolving credit facility (Flex) sits in between. It has the “pay only for what you actually draw” flexibility of an overdraft, combined with the fast-arrange + can-not-be-called-back security of a short-term loan. The headline rate is higher than a bank overdraft, but the per-drawing cap keeps worst-case cost predictable, and the setup time is hours, not weeks. [There’s a fuller three-way comparison here](/support/flex-vs-overdraft-vs-invoice-finance/).

## How to choose

Three questions:

- **Do you know the exact amount and the exact deadline?** Yes → short-term loan. No → overdraft or Flex.

- **How fast do you need the facility in place?** This week → fintech short-term loan or Flex. In a month → bank overdraft.

- **Are you confident your bank won’t withdraw the facility at the wrong moment?** Yes → bank overdraft is fine. No → fintech short-term loan or Flex avoids that risk.

For a like-for-like cost comparison on a specific scenario, the [business loans calculator](/business-loans/) will show you the £ total. Talk to your bank for an overdraft quote alongside — it’s a real comparison worth doing.

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Credicorp Limited — UK lender to limited companies (Company No. 16093826). credicorp.co.uk