Key takeaways
- A business overdraft cannot be ported from one bank to another. Switching means applying for a new overdraft and repaying and closing the existing facility.
- The Current Account Switch Service can move an eligible business current account and its payment arrangements, but the overdraft requires a separate credit application.
- Security, account switching and repayment of any drawn balance can affect the timeline.
Moving an overdraft to a new bank is more involved than changing current accounts. A business looking to switch business overdraft providers needs to apply for a new facility, agree any new security and close the old overdraft in the right order.
What switching a business overdraft actually means
An overdraft facility transfer is not a direct transfer of existing borrowing. The incoming bank assesses the business afresh and, if approved, provides a new overdraft on its own terms.
The existing overdraft needs to be repaid and formally closed. If the outgoing lender holds a debenture, that security will need to be released before the incoming lender can register any required first-ranking security.
The Current Account Switch Service, or CASS, is separate. It can move an eligible business current account, including Direct Debits, standing orders and incoming payment redirects, in seven working days. The business account switch guarantee applies to the account-switching process, not to approval of a new overdraft.
What to check before you start the switching process
Before making a business banking switch, three points are worth checking:
- Eligibility. Allica’s standard business overdraft eligibility includes being a UK limited company or LLP, trading for more than 24 months, being profitable and having annual turnover above £500,000. A threshold above £300,000 can apply where supported by the Growth Guarantee Scheme.
- Security. Allica’s product information states that a first-ranking debenture and/or personal guarantee may be required. For overdrafts between £25,001 and £49,999, only a personal guarantee may be required.
- Current borrowing. If the existing overdraft is drawn, the business needs a plan for repaying that balance as part of the switch.
These criteria and security requirements are subject to status and Allica’s lending assessment.
Businesses comparing commercial overdraft rates should also consider arrangement fees, security costs and borrowing needs. Allica’s overdraft cost calculator can help estimate potential costs.
A step-by-step guide to switching your business overdraft
Step 1: Assess your current facility and what you actually need
Start with an overdraft limit review. The business should check its current limit, rate, security and typical usage rather than automatically applying for the same facility elsewhere.
A lower limit may be enough if cash flow has improved; a higher one may suit increased turnover or working capital needs.
Step 2: Apply for a new overdraft at the incoming bank
The overdraft application process normally asks for the amount required, purpose, recent accounts and bank statements, plus information about ownership and trading history.
At Allica, the initial application can be completed online in a few minutes. The bank reviews the information before approving a limit, subject to status and lending criteria.
Two years of accounts are required for facilities above £50,000, so businesses applying for larger limits should have these ready.
Step 3: Open and switch the business current account
Some lenders require the overdraft to sit alongside their current account. At Allica, an approved business must open a Business Rewards Account and make it its main business current account before the overdraft can be activated.
For an eligible business, CASS can simplify switching business current account arrangements. It moves payment arrangements and redirects incoming payments, with the full switch taking seven working days.
A business wanting to switch business bank account provider should remember that CASS handles the current account only. The new overdraft remains a separate application.
Businesses moving their banking to Allica can find more information on how to switch to Allica.
Step 4: Release the old debenture and formally close the existing facility
Once the new arrangements are ready, the old overdraft needs to be repaid and formally closed. Any existing debenture also needs to be released so the new lender can put its own security in place where required.
The outgoing lender should be contacted early enough to avoid delays.
How long does switching a business overdraft take?
The lending decision and full switch are different milestones. Allica says the online overdraft application takes a few minutes to start, but approval timing depends on the business’s circumstances and information supplied.
As a planning assumption, businesses should allow closer to a month for the full process where security paperwork, KYC checks and account switching are involved. CASS itself takes seven working days once the new account is open and a switch date has been agreed.
Frequently asked questions
Can I use the Current Account Switch Service to move my business overdraft?
No. The Current Account Switch Service moves the eligible current account, not the overdraft. A new borrowing facility must be agreed separately with the incoming bank. An overdrawn business can still use CASS, but any new overdraft needs to be agreed with the new bank first.
What happens to my existing overdraft when I switch?
It is not transferred. The existing overdraft must be repaid and closed. If it is drawn, the business should agree how that balance will be cleared before completing the switch.
Do I need to switch my business bank account to get an overdraft at a new bank?
Requirements vary by lender. At Allica, a Business Rewards Account must become the business’s main current account before an approved overdraft can be activated.
Will applying for an overdraft at a new bank affect my credit record?
A new borrowing application typically involves credit assessment. Businesses planning other finance applications around the same time should consider this when sequencing applications.
Next steps for switching your business overdraft
A successful switch depends on more than finding a new rate. The business needs to compare eligibility, security, facility size, fees and timing, then coordinate new approval with repayment and closure of the old facility.
Businesses considering a switch can review Allica’s business overdraft and start an application online.
Disclaimer: This is information – not financial advice or recommendation.
