Quick answer
A business overdraft and a business line of credit both let a New Zealand business draw, repay and redraw up to a limit. An overdraft is attached to your everyday bank account and usually comes from your own bank. A line of credit is typically a separate facility, often from a non-bank lender, and may be available when a bank overdraft isn't. Both are fastest when set up before you need them; drawing is near instant once open.
Key points
- Both are revolving limits — draw, repay, redraw.
- Overdrafts sit on your bank account; lines of credit are usually separate.
- Non-bank lines of credit may suit businesses a bank won't extend.
- Set up either one before the crunch, not during it.
- Overdraft
- Attached to your bank account
- Line of credit
- Separate facility, often non-bank
- Drawing speed
- Near instant once open
Every business with uneven cash flow eventually asks the same question: should I have a facility I can dip into? The two common answers are an overdraft and a line of credit. They’re cousins rather than twins. Knowing the differences helps you pick the one that’s actually available to you, fits your cycle and will be there when you need it most.
How are they similar?
Both are revolving. You get a limit; you use what you need; you repay as money comes in; you can use it again. Both are usually priced on what you use, and both can carry fees for having the facility available. And both are near instant to draw once they’re in place — which is why they’re the fastest funding of all, if you arrange them early.
How are they different?
| Feature | Business overdraft | Business line of credit |
|---|---|---|
| Where it sits | On your everyday bank account | Separate facility, drawn into your account |
| Usually offered by | Your own bank | Banks and non-bank lenders |
| Typical assessment | Bank’s full credit policy | Bank statements, trading, sometimes property |
| Who it suits | Established bank customers | Including businesses a bank won’t extend |
| Review | Bank can review the limit under its terms | Per facility terms |
| Visibility | Balance shows as a negative bank balance | Separate balance and statement |
Which is faster to get?
If you’re a long-standing, strong customer of your bank, an overdraft might be quick. But many businesses find banks slower to extend or increase overdrafts — especially with IRD debt, a recent dip, or a short trading history. A non-bank line of credit can often be set up within a day or two when statements and ID are ready, and considers those situations case by case.
Which suits my cash cycle?
- Small daily swings — a bank overdraft is convenient.
- Larger, seasonal or tax-driven gaps — a dedicated line of credit is often cleaner.
- One-off big needs — neither; a working capital loan or cash flow loan keeps it separate and disciplined.
How do tax dates fit in?
Lumpy tax payments are one of the most common reasons to want a revolving facility. Inland Revenue lets businesses with sales under $24 million file GST two-monthly, and those under $500,000 file six-monthly — which can mean larger, less frequent payments. Provisional tax adds further instalments. A revolving facility lets you pay on time and repay as sales come in. Our GST and cash buffer guide explains how to combine a facility with a simple set-aside habit.
What are the warning signs either way?
- The balance never returns to zero, or close to it.
- You’re drawing to pay tax that should have been set aside.
- The limit keeps creeping up without sales growing.
If that’s happening, the facility is masking a deeper problem. A term loan to clear the build-up, plus better tax habits, may be healthier.
How do I set one up quickly?
Have your statements, ID and company details ready, then start a quick enquiry and say you want a revolving facility.
Can I move from an overdraft to a line of credit?
Yes. Some businesses use a non-bank line of credit to clear a stretched bank overdraft, then keep the overdraft small for day-to-day banking. That can separate everyday transactions from seasonal or tax-driven borrowing, which makes both easier to manage and gives a clearer picture of how the business is really trading. If your bank has reduced or declined an overdraft, a line of credit may also fill the gap. Mention any recent bank decision on the first call so the specialist understands the full picture.
How do I compare the real costs?
Comparing revolving facilities is harder than comparing loans, because the cost depends on how you use them. Ask each provider for the following and write the answers side by side:
- Establishment or setup fees — charged once when the facility opens.
- Ongoing line, account or limit fees — charged whether or not you draw.
- Usage charges — on the amount you actually draw, and how they’re calculated.
- Fees for exceeding the limit or for late repayments.
- Review terms — how often the limit is reviewed and how much notice you get of changes.
Then model a typical year: how much you’d draw, for how long, and how often. The facility with the lowest headline charge isn’t always the cheapest once fees and your real usage are included. The specialist can help you run that comparison during the first call.
Which should I set up first?
If you have neither, start with whichever matches your biggest regular gap. Daily swings point to an overdraft; seasonal or tax-driven gaps point to a line of credit.
Illustrative example: a seasonal Otago retailer
Illustrative only. A Wanaka outdoor gear retailer has a small bank overdraft for weekly swings. Each autumn it needs $90,000 to stock up for winter, which the bank won’t add to the overdraft. It sets up a separate line of credit, draws in March, and repays by August from winter sales. The overdraft stays small and tidy for daily use.
Want a facility that’s ready before you need it?
Tell us about your cash cycle and we’ll suggest whether a line of credit, a loan or both fits best. Enquiring takes about 60 seconds and there’s no credit check when you first enquire. Your details aren’t scattered to a crowd of lenders, and a real person calls to talk it through. Please share accurate turnover and timing so the limit fits your real cycle.
Frequently asked questions
What's the main difference between an overdraft and a line of credit?
An overdraft is a limit on your everyday bank account, usually from your bank. A line of credit is a separate revolving facility, often from a non-bank lender, that you draw into your account when needed.
Which is faster to set up?
It varies. Your own bank may extend an overdraft quickly if you're a strong customer. A non-bank line of credit can be set up within a day or two when statements and ID are ready, including for businesses the bank won't extend.
Can I have both?
Yes. Some businesses keep a small bank overdraft for day-to-day swings and a separate line of credit for larger seasonal gaps.
Can my bank reduce or cancel an overdraft?
Overdraft terms usually allow the bank to review the limit. Read your facility terms so you know how much notice applies.
Which costs less?
It depends on the facility and your circumstances. Ask for every fee and charge in writing and compare the total cost for how you'd actually use it.