# Bank overdraft vs short-term business loan

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

A business overdraft and a short-term loan solve overlapping problems in different ways. An overdraft is a flexible buffer attached to your current account; a short-term loan is a fixed sum you draw, then repay on a set schedule. Neither is automatically cheaper or better. This article sets out when each tends to fit, so you can choose with the trade-offs in front of you.

## How each one works

An overdraft lets your account go below zero up to an agreed limit. You usually pay interest only on the amount you are actually overdrawn, day by day, plus any arrangement or usage fees your bank sets. It is revolving: as money comes in, the balance recovers and you can dip in again. A short-term loan is different. You agree a fixed amount over a fixed term, the money lands, and you repay it in instalments until it is cleared. Our live product is a short-term Business Bridging Loan of **£50 to £500 over 14 to 84 days**, repaid weekly or fortnightly.

## Flexibility vs certainty

The core trade-off is flexibility against certainty. An overdraft is flexible: ideal for a balance that swings up and down, where you cannot predict the exact day or amount you will need. But that flexibility has a sting — many overdrafts are repayable on demand, meaning the bank can reduce or withdraw the facility, sometimes at short notice. If you rely on it as permanent working capital, that is a real risk.

A fixed-term loan gives you certainty instead. You know the amount, the instalments and the end date from day one, and the lender cannot simply call it in if you keep to the schedule. The cost is that you commit to repaying the whole sum even if you end up needing less. For a known, one-off gap with a clear repayment date, that certainty is often worth more than flexibility.

## Comparing the cost honestly

On cost, an overdraft can be cheaper if you dip in only occasionally and clear it quickly, because you pay for what you use. A short-term loan is an expensive way to borrow when measured as an annual rate, because the fixed cost of arranging a small, short advance is spread over only a few weeks. We say that plainly. What we offer in return is transparency and no early repayment fee: before you sign, your Key Information Sheet (KIS) and Business Loan Agreement show the amount, term, total amount payable, total cost of credit, a simple annualised rate and the full schedule. We do not quote a consumer APR. Overdraft pricing comes from your bank, so compare its published rates and fees against our figures for your specific need.

Worth noting on regulation: lending to a company is outside FCA consumer-credit regulation under Article 60B FSMA RAO 2001, so our loan is not covered by the Financial Ombudsman Service or the FSCS. Your bank’s overdraft sits under its own regulatory regime. These are not like-for-like protections.

## Which to pick

Choose an overdraft for an unpredictable, recurring buffer — provided your bank will grant or keep one, and you are comfortable it could be reviewed. Choose a short fixed-term loan for a specific, time-boxed gap where a guaranteed end date matters more than flexibility. And sometimes the answer is neither. If the pressure is ongoing rather than a one-off, more borrowing can deepen the problem. We set out steadier options in our guide to [alternatives to short-term lending](/support/alternatives-to-short-term-lending/), and we are blunt about the situations where you should pause in [when not to take a short-term business loan](/support/when-not-to-take-a-short-term-business-loan/). Read both before you decide.

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