Compare
Business overdraft vs line of credit
Two names for what’s often the same mechanic. The real differences sit in the fine print, not the label.
Plenty of lenders could call their line of credit an overdraft, and vice versa, and nobody would argue. The name is marketing. The mechanics underneath are usually the same. Both are revolving facilities: draw down when you need it, repay, and the limit opens back up. What differs sits in the contract, not the label.
Both can scale to seven figures for the right profile. The real difference is in the term and how it’s reviewed.
Tied to your transaction account
Traditionally a bank product attached to your existing transaction account, drawing below zero up to an approved limit. Non-bank lenders now write overdraft-style facilities too, standalone from any transaction account.
A standalone revolving limit
Approved to a limit, drawn down as needed, independent of any transaction account. Some are open-purpose. Others are restricted to specific uses, like supplier payments against an invoice.
What should you check in the contract, regardless of the label?
Whatever the product is called, these are the things that change how it behaves day to day. Purpose restrictions: some facilities are open-purpose, and others only release funds against a specific use. That isn’t how most business owners assume the product works when they first ask for one. Per-drawdown treatment: some lenders treat every drawdown as its own separate loan, so three drawdowns can mean three running repayments a month, not one. Exclusivity clauses: many won’t want another working capital facility alongside theirs without signing off on it first, and breaching that can mean foreclosure, a blocked facility, or repaying in full within 30 to 90 days. Early payout terms: some won’t let you pay out the principal alone without incurring further charges.
| What matters | Business overdraft | Line of credit |
|---|---|---|
| Facility limit | Up to $1,000,000, higher available for the right profile | $20,000 to $1,000,000 |
| Term | 12 months to 5 years, depending on lender and profile | Varies by lender, often ongoing while in good standing |
| Security under $250k | Director’s guarantee at minimum | Director’s guarantee, sometimes plus a GSA |
| Security above $250k | Property security or a caveat more common | Property security or a caveat more common |
| Purpose | Usually open-purpose | Varies, some purpose-restricted |
Is either one secured or unsecured?
Same rule as our other facilities: the cheaper the rate, the more security a lender typically wants. Under $250,000, that’s usually a director’s guarantee at minimum, often a general security agreement over business assets with the better-priced lenders. Above $250,000, property security or a caveat over property becomes more common, and more so past $1,000,000. Non-bank lenders now write both overdraft and line of credit facilities where property security isn’t required at all. You pay for that flexibility in the rate either way.
An overdraft-style facility fits if
- You want it tied to an existing transaction account
- You’re comfortable with a bank-style, annually reviewed structure
- Your usage is broadly open-purpose working capital
A line of credit fits if
- You want a standalone facility, independent of your transaction account
- You need a larger or smaller limit than a typical overdraft range
- You’ve checked the purpose restrictions fit how you’ll use it
The name on the product isn’t the thing to compare
Two facilities called different things can behave identically, and two facilities called the same thing can behave completely differently. And the rate is only part of it. Payout penalties, exclusivity clauses and how each drawdown is treated matter just as much. Tell us how your business needs to draw and repay, and we’ll match you to a facility based on what it does, not what it’s called.
Comparing overdraft and line of credit quotes?
Send through what you’re looking at and we’ll tell you what the fine print means for your business.
What does an unused limit cost?
More than most people expect, and this is the test that separates the two. On a revolving facility the interest applies to what you’ve drawn, but the line fee applies to the whole limit. The less of it you use, the more each borrowed dollar costs you.
Take published pricing: CommBank’s secured business overdraft at 8.75% p.a. with a 1.70% line fee. On a $100,000 limit that line fee is $1,700 a year whether you touch the facility or not.
| Average drawn | Interest + line fee | Effective cost of funds |
|---|---|---|
| $20,000 (20% used) | $1,750 + $1,700 = $3,450 | 17.25% p.a. |
| $50,000 (50% used) | $4,375 + $1,700 = $6,075 | 12.15% p.a. |
| $100,000 (fully drawn) | $8,750 + $1,700 = $10,450 | 10.45% p.a. |
At 20% utilisation the facility costs 17.25% a year on the money you actually used, against 10.45% fully drawn. That’s 1.65 times as much, on identical published pricing. The line fee on its own is 8.50% of the $20,000 you borrowed, before a cent of interest. So a facility with the cheaper headline rate can easily be the dearer one if you rarely draw it. The real question isn’t which rate is lower. It’s how much of the limit you’ll carry.
That’s why the choice between an overdraft and a line of credit is usually a utilisation question. A standing limit you sit against most of the month spreads its fee efficiently. A limit held for occasional use is paying for availability, and if that’s what you want, price the availability properly rather than assuming the headline rate is the cost.
Arithmetic on CommBank’s published overdraft pricing, September 2026, chosen because they publish it and most line of credit providers don’t. The mechanic applies to any revolving facility charging a fee on the limit. Your own lender’s fee structure may differ, and some facilities carry establishment or ongoing charges on top.
Frequently asked questions
Give us the basics below and we’ll call you within the hour, or at the time you choose, then come back with the two or three offers worth your time.