The Growth Guarantee Scheme can support a business overdraft — a flexible, revolving facility for short-term working capital where you draw and repay as needed and pay interest only on what you use. The government guarantee reduces the lender’s risk to improve access, your main home can’t be taken as security, and an overdraft is best for fluctuating, short-term needs while a term loan suits one-off investment. Apply through an accredited lender that offers overdrafts under the scheme.
Key takeaways
- An overdraft is one of the scheme’s supported facility types.
- It provides flexible, revolving working capital — draw and repay as needed.
- You typically pay interest only on the amount used.
- Rates are usually variable; check the cost and any facility fee.
- Best for short-term, fluctuating needs — a term loan suits investment.
- Your principal private residence cannot be taken as security under the scheme.
Not every funding need is a one-off lump sum. For the day-to-day ebb and flow of running an established business — covering the timing gaps between paying suppliers and being paid by customers — a flexible facility is often more useful than a fixed loan. The Growth Guarantee Scheme can support a business overdraft for exactly this purpose, with a government guarantee that improves access. This guide explains how scheme-backed overdrafts work, what they cost, and when to use one.
What is a business overdraft?
A business overdraft is a flexible facility that lets you spend beyond your account balance up to an agreed limit. You draw on it as you need to and repay as money comes in, and you typically pay interest only on the amount you actually use — not the whole limit. This revolving flexibility makes an overdraft ideal for managing short-term cash-flow gaps rather than funding a single large purchase.
How the scheme applies
As with the scheme’s other facilities, the government provides the accredited lender with a partial guarantee against the outstanding balance, reducing the lender’s risk and encouraging it to support viable businesses. The overdraft itself behaves as normal; the guarantee operates behind the scenes between the lender and the British Business Bank. You remain fully liable for the amount you draw, and the guarantee improves access rather than reducing your liability.
Overdraft vs term loan
Choosing between an overdraft and a term loan comes down to the nature of the need:
| Feature | Overdraft | Term loan |
|---|---|---|
| Best for | Short-term, fluctuating working capital | One-off, larger or longer-term needs |
| Repayment | Flexible — draw and repay as needed | Fixed schedule over a set term |
| Interest | On the amount used | On the full balance over the term |
| Typical rate | Usually variable | Often fixed |
Many established businesses use both — an overdraft for everyday flexibility and a term loan for investment — which is possible under the scheme subject to the overall maximum and the lender’s assessment.
What it costs
The accredited lender sets the cost. You typically pay interest only on the amount drawn, and there may be a facility or arrangement fee. Overdraft rates are usually variable and may move with an underlying reference rate, so the cost can change over time. As with all scheme facilities, the guarantee improves access rather than guaranteeing a lower cost, so compare the total cost — including any fee — across accredited lenders.
Security and your home
Whether security or a personal guarantee is required is at the lender’s discretion. Under the Growth Guarantee Scheme, a lender cannot take your principal private residence as security, which is an important protection for directors using an overdraft facility.
Good for seasonal and variable trading
An overdraft’s flexibility makes it particularly well suited to businesses with seasonal or uneven cash flow, where income and outgoings vary across the year. Because you only pay for what you use, you can lean on the facility in quieter periods and repay when trade picks up.
Overdrafts are typically repayable on demand and the limit can be reviewed, so use one for genuine short-term needs rather than long-term reliance. For ongoing funding, a term loan may be more appropriate.
How to apply
- Assess your short-term, fluctuating working-capital needs.
- Find accredited lenders that offer overdrafts under the scheme (or use a broker).
- Prepare recent accounts, management figures and bank statements or open-banking access.
- Apply, and let the lender assess your cash flow and affordability.
- Compare the rate, any facility fee and terms before accepting.
The bottom line
A scheme-backed overdraft gives established businesses flexible, revolving working capital with a government guarantee that improves access — ideal for smoothing short-term cash-flow gaps and seasonal trading. You pay interest only on what you use, your main home is protected, and you can pair it with a term loan for investment. Compare the cost across accredited lenders and use the facility for genuine short-term needs to get the most from it.
Frequently asked questions
Does the Growth Guarantee Scheme support overdrafts?
Yes. An overdraft is one of the facility types the scheme can support, alongside term loans, asset finance and invoice finance. It provides flexible, revolving working capital with a government guarantee reducing the lender’s risk.
What is a business overdraft?
A business overdraft is a flexible facility that lets you spend beyond your account balance up to an agreed limit. You draw on it as needed and repay as funds come in, paying interest only on the amount used, which makes it ideal for short-term cash-flow gaps.
How does the government guarantee apply to an overdraft?
As with other facilities, the government provides the accredited lender with a partial guarantee against the outstanding balance, reducing the lender’s risk. The overdraft works as normal; the guarantee operates behind the scenes between the lender and the British Business Bank.
When should I use an overdraft rather than a loan?
An overdraft suits short-term, fluctuating working-capital needs — covering timing gaps between outgoings and income. A term loan suits a one-off, larger or longer-term need. Many businesses use an overdraft for day-to-day flexibility and a loan for investment.
Do I pay interest on the whole overdraft limit?
No. You typically pay interest only on the amount you actually use, not the whole agreed limit. There may also be a facility or arrangement fee. Check the lender’s charging structure so you understand the total cost.
Is the overdraft rate fixed or variable?
Overdraft rates are usually variable and may move with an underlying reference rate, so the cost can change. Confirm the rate and how it is set with the accredited lender before accepting the facility.
How much overdraft can I get under the scheme?
The scheme supports facilities up to a defined maximum per business group (up to £2 million for most businesses), subject to scheme rules and the lender’s assessment. Your overdraft limit depends on the lender’s view of your cash flow and affordability.
Is an overdraft secured under the scheme?
Whether security or a personal guarantee is required is at the lender’s discretion. Under the scheme, however, a lender cannot take your principal private residence as security, which is an important protection.
Can the lender reduce or withdraw the overdraft?
Overdrafts are typically repayable on demand and the limit can be reviewed, so they are best used for genuine short-term needs rather than long-term reliance. Read the terms to understand the lender’s rights over the facility.
Is an overdraft good for seasonal businesses?
Yes. The flexibility to draw and repay as cash flows in and out makes an overdraft well suited to seasonal trading, where income and outgoings vary across the year. You only pay for what you use.
Who sets the cost of a scheme-backed overdraft?
The accredited lender sets the rate and fees. The guarantee improves access rather than guaranteeing a lower cost, so compare the total cost across lenders, including any facility fee as well as the interest rate.
Is approval guaranteed under the scheme?
No. The lender assesses your cash flow, affordability and business within the scheme rules. The guarantee can support a viable application but does not switch off underwriting.
Can I have an overdraft and a term loan?
Potentially, subject to the overall scheme maximum per business group and the lender’s assessment. Many businesses combine a flexible overdraft for day-to-day needs with a term loan for investment.
How do I apply for a scheme-backed overdraft?
You apply through an accredited lender that offers overdrafts under the scheme, or use a broker to identify suitable lenders. The lender assesses your cash flow and business and, if approved, sets the limit and terms.
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Get your free quoteThis article is general information, not financial advice. Eligibility, rates and terms vary by lender and your circumstances. The Loans Hub is a finance broker, not a lender.
