From a piece of equipment breaking to the cancellation of a major order, business owners often have to deal with unexpected costs that can push their business account balance below zero.
A business overdraft facility could be the solution, but only once you’ve ruled out the alternatives because it can be quite expensive. In this guide, we’ll look at some popular business bank accounts with overdraft in Canada, plus learn how an overdraft facility can help your business.
Business bank accounts with overdrafts in Canada
Want to add overdraft to your business bank account or skip overdraft fees altogether? Keep reading to find out about popular business accounts with overdraft protection – or no overdraft fees at all.
Want to skip paying overdraft fees altogether? The Vault Business Account charges no overdraft fees. This business account can also be useful if you conduct business in multiple countries outside of Canada, since it's a multi-currency account. Other perks include no monthly account fee and you can earn cashback when you spend with your Vault credit card.
No overdraft fees
No monthly account fee
Easy online signup process
Send funds in over 30 currencies
Earn cash back on spending
Not available for sole proprietors or partnerships
With an RBC Business Account, you have the option to add Royal Business Overdraft Protection to your account. The RBC Digital Choice Business Account is catered toward those who prefer to manage most of their business banking via their smartphone. With the RBC Mobile app you can quickly and easily pay employees and suppliers, request payments, track your spending and business performance, deposit cheques, send transfers and much more.
Unlimited electronic debit and credit transactions
The TD Every Day Business Plan is designed to provide a cost-effective way to manage your day-to-day business banking needs. It's available in three plans — A, B and C — that support 20 transactions as well as . Each plan also comes with a monthly fee, but this is waived if you meet minimum balance requirements. Overdraft protection with TD usually comes with a monthly fee, but the fee is waived on this account. $5,000 cash deposits, 50 deposit items, and there's no application fee required to add overdraft protection to your account.
No monthly fee for overdraft protection
Three plans available to suit your business' transaction needs
The BMO Business Builder is an account that can suit a wide range of businesses. It's available in four plan sizes that support 35 transactions per month, including two Interac e-Transfers and unlimited Moneris transactions, and . You can also add BMO's Small Business Overdraft Protection Service to your account to take advantage of 25 items deposited per month and $2,500 in cash deposits. You can either pay a fixed $22.50 monthly fee for the service, or you can choose the pay-per-use option and pay a fee every time you need overdraft.
The Right Size Account for Business is designed to suit the needs of businesses that perform limited transactions. You only pay for the transactions you make with this account, while a $0 monthly fee also applies. It's easy to manage your finances via online and mobile banking, and you can add overdraft protection to your account for just per month. Credit limits of $500 to $10,000 are available, and the funds you borrow are treated as a revolving line of credit that you pay back whenever you are able to.
Account can be tailored to suit your transaction needs
Overdraft protection of available
No deposit fees on payment processing with Chase Merchant Services
Overdraft interest rate of 3.5%
Transaction fees apply
Not suited to businesses that perform a high volume of transactions
Designed for growing businesses, the CIBC Advanced Business Operating Account supports up to 100 transactions. e-Transfers are included in the monthly limit, and you can also . If you want to add overdraft protection to your account, you can access $5,000 cash, $500 coin deposits and 50 cheque deposits. Protection is also available in US and Canadian dollars, providing extra flexibility for Canadian businesses that operate in the US.
Apply for secured overdraft protection to get a lower rate
National Bank's Premium Business Package supports unlimited electronic transactions, unlimited e-Transfers and 100 assisted transactions per month. It offers all that for a $95 monthly fee, which is waived if you have a balance of $80,000 or more. You can also take advantage of National Bank’s Business Overdraft Limit, which allows you to add between $1,000 and $10,000 of cover to your account. Then when you spend more than you have, funds are automatically transferred to cover the cost of the transaction.
Up to $10,000 of overdraft protection
Unlimited electronic transactions and e-Transfers
Reduced monthly fee if you have a Platinum Business Mastercard credit card
$5 fee per overdraft transaction
High monthly balance required to avoid account fee
Monthly Account Fee
$95
Multicurrency Accounts
CAD
GIC Available
Yes
What is a business overdraft?
A business overdraft is a feature of your business chequing account that allows you to keep spending even if your account balance goes below zero. This means you can continue to cover expenses and unexpected costs even if you have an unexpected cash flow shortage, and you can avoid paying expensive NSF fees.
Just like a personal overdraft, you can choose whether or not you want overdraft protection as part of your business account. It’s a flexible way of borrowing money, but there are quite a few fees and costs that apply (more on this below). Make sure you weigh up your options carefully before applying.
What is an NSF fee?
NSF stands for non-sufficient funds. Your bank or financial institution charges an NSF fee when you don’t have enough money in your chequing account to cover a transaction. This fee can be $40 or more, so overdraft protection is often a cheaper option if your business bank account sometimes gets low on funds.
Can I get a business bank account with an overdraft?
Yes. Most business bank accounts come with overdraft protection. Some accounts have overdraft automatically built in, while others offer it as an optional extra for an additional monthly or annual fee.
Business overdrafts are more often unsecured, but some banks may also offer a “secured” option, which means you’ll have to use your business assets as collateral.
Overdraft limits, interest rates and fees will depend on the bank, on your business’s turnover, and on how much you borrow during the year.
How much does a business bank account with an overdraft cost?
There are two main overdraft costs to take into account:
Interest rate. Overdraft interest is only charged if you do in fact end up using your overdraft. The rate you are offered will often depend on your business turnover and credit score. The final cost will also depend on how long it takes you to pay the overdraft back. The rate is usually variable, which means that it changes with the Bank of Canada’s official overnight rate.
Fees. Overdraft fees are often fixed and are charged annually or monthly. Some banks will charge it whether you use the overdraft facility or not, while others will charge a per-use fee on each overdraft transaction you make.
The advertised interest rate on business overdrafts is often quite reasonable, but keep in mind that it is not necessarily the same as what your business will be offered (which will largely depend on its credit score).
As for fees, it’s important to read the terms and conditions carefully so you know what and when you’ll be charged. You should also watch that you don’t go beyond your arranged overdraft’s limit to avoid any unauthorized borrowing fees, which can be quite hefty.
Will I need to complete a credit check if I apply for a business bank account with an overdraft?
Yes, the bank will check your business credit score when assessing your application. Depending on your score, your overdraft application may be refused or you may be offered a higher rate.
It’s a good idea to check your business credit score in advance so you know where you stand. Taking steps to improve your score could help you qualify for a lower overdraft interest rate.
Who might open a business bank account with an overdraft?
An overdraft can be a good option for many businesses, including small businesses and much larger operations.
However, it should only be seen as a safety net you can fall on if something goes wrong, rather than as a line of credit to use regularly. It is a fairly expensive way of borrowing money, so if you need it often, you may want to look for a cheaper solution.
For example, you can consider a business credit card, which can help your business cash flow and lets you borrow interest-free as long as you always pay back your bill on time. Fees also tend to be lower than with overdrafts and you might get additional benefits and perks too.
Do I qualify for business overdraft?
The exact requirements you’ll need to meet to qualify for an overdraft facility vary between banks. But as a general guide, you will need to:
Have a business bank account that has an overdraft facility
Have a good credit score
Have a detailed business plan
Meet revenue requirements
Check with your bank to find out if you’ll need to provide any additional documentation during the application process.
Pros and cons of business overdrafts
Pros
Manage short-term cash flow issues. Business overdrafts offer a handy safety net when your business experiences an unexpected shortfall.
Avoid NSF fees. A business overdraft lets you avoid expensive NSF fees if you don’t have enough funds in your account to cover a payment.
Flexible. You can use overdraft protection funds for any purpose, and you can borrow funds at any time and pay them back at any time.
Maintain your business’ reputation. Having overdraft protection in place can prevent you from missing a payment and harming your business’ reputation.
Only pay interest on the amount you use. You only have to pay interest if you do in fact use the overdraft facility, and you only pay interest on the funds you access.
Easy application process. It’s quick and easy to set up overdraft protection on your business account, and it’s much less complicated than applying for new credit.
Cons
Monthly fees. Monthly fees for overdraft protection can quickly add up, even if you don’t use the facility.
Overdraft fees. Your bank may also charge overdraft handling fees on each transaction for which you don’t have sufficient funds.
Overdraft interest. Check the interest rate that applies to your overdraft amount. Keep in mind that the rate is variable so the cost of using the overdraft facility may increase.
Difficult to shop around. As overdrafts are part of your business account, shopping around for the best deal is a bit hard unless you are prepared to switch the whole account.
You’ll need good credit. Overdraft protection is only available to businesses that have a pretty good credit score.
Compare more business bank accounts
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Bottom line
Just like personal overdrafts, business overdrafts shouldn’t be used all the time. But they can be good to have if anything goes wrong and your business has to face extra costs.
Be especially careful when applying and make sure you have read and understood all the fees and costs (particularly what happens if you go over the credit limit).
Business overdraft frequently asked questions
When you access your business bank account overdraft, you'll be charged interest on the money you are effectively borrowing from your bank. Interest is typically variable, so rates change in line with the Bank of Canada's policy rate, while your credit score and business turnover can also affect the rate you get.
The simplest way to avoid overdraft interest is to avoid using your account's overdraft protection. If your account does go into overdraft, paying back what you owe as soon as possible will minimize the amount of interest you have to pay.
Overdraft protection can be a useful account feature for many businesses. It provides a financial safety net to help you cover unexpected cash flow shortages, allowing you to avoid costly NSF fees and protect your business' reputation. However, fees and interest apply, so using overdraft protection does have its drawbacks.
Yes, many business bank accounts offer overdraft protection. Some accounts offer overdraft protection as an optional extra for a monthly fee. Others come with overdraft protection built-in, but you'll be charged a fee for each transaction that causes or increases an overdraft.
Depending on your bank, you should be able to do it online, over the phone, or in person. It should be a relatively straightforward process if you already have a business account with that same bank, because it will already have all the information on your business and its finances (unless your overdraft application is part of a wider business account application with a new bank).
Apart from business credit cards, which we've already mentioned, there are a few business loan options that are more suitable to help with certain cash flow issues. Check out business lines of credit and invoice financing, for example.
Tim Falk is a freelance writer for Finder. Over the course of his 15-year writing career, he has reported on a wide range of personal finance topics. Whether you're investing in stocks and ETFs, comparing savings accounts or choosing a credit card, Tim wants to make it easier for you to understand. When he’s not staring at his computer, you can usually find him exploring the great outdoors. See full bio
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