poppyHow each one works
- Business loan: a fixed amount paid up front, repaid in set amounts over a set term
- Business overdraft: a limit on your transaction account that lets you go below zero, with interest charged on what you use
- Line of credit: a separate facility you draw from and repay as you go, often up to an approved limit
Side by side
| Short-term loan | Overdraft / line of credit | |
|---|---|---|
| Best for | A specific purchase or project | Ongoing, variable cash flow needs |
| Repayments | Fixed amounts, fixed end date | Flexible, as you use it |
| Cost | A known total to repay | Interest on what you use, plus fees |
| Discipline | Paid off by a set date | Can become a permanent debt |
| Availability | Often faster, often unsecured | Banks often want security |
When a loan makes more sense
- You know exactly what you need the money for and how much it costs
- You want a clear end date and a fixed repayment to budget around
- Your bank won’t offer an overdraft without property security
When an overdraft or line of credit makes more sense
- Your cash needs go up and down unpredictably through the year
- You only need a buffer occasionally and want to pay interest only when you use it
- Your bank offers one on reasonable terms
If your bank offers you a lower-cost overdraft, compare it first. We’d rather you use the right tool for the job.