My Bank Cut My Overdraft. Now What?
You're not the only one. Since 2020, UK banks have been systematically reducing business overdraft facilities. The total value of UK SME overdrafts fell from £11.2 billion in 2019 to under £7 billion by 2025 — a 40% drop. Banks have decided the economics don't work for them, and thousands of perfectly healthy businesses have had limits cut or removed entirely.
The good news: there are alternatives. The most common replacement is invoice finance, which actually works better than an overdraft for most B2B businesses because it grows with your turnover instead of hitting a fixed ceiling.
Why Banks Are Doing This
It's not personal. Post-2020, banks have tightened lending criteria across the board. Overdrafts are expensive for banks to administer relative to the income they generate. They're repayable on demand, which means the bank carries the risk of sudden withdrawal. And Basel III capital requirements mean banks need to hold more capital against unused overdraft commitments. The result: banks are pushing SMEs towards structured lending products (term loans, asset finance) and away from open-ended revolving credit.
Your Replacement Options
Invoice finance
If you invoice other businesses on credit, this is the most natural overdraft replacement. You get 70-95% of each invoice within 24 hours. Unlike an overdraft, the facility grows automatically as your turnover grows — no need to go back to the bank and ask for an increase.
Revolving credit facility
Works like an overdraft but as a separate credit line (not tied to your current account). Available from some challenger banks and alternative lenders. Typically £10,000-£500,000 with interest of 8-20% on the drawn amount. More expensive than an overdraft but more available.
Merchant cash advance
If you take card payments, a provider advances cash against your future card revenue and takes a percentage of each day's takings. No fixed repayment schedule. Only suitable for retail, hospitality, or e-commerce businesses — not for B2B invoice-based businesses.
Term loan
A fixed lump sum repaid over 1-5 years. Banks prefer these because they're structured and predictable. But a loan doesn't solve a recurring cash flow problem — it just delays it. When the loan runs out, the gap returns.
Switch banks
Sometimes the easiest answer. If your current bank has reduced your facility, another bank may offer better terms — especially challenger banks like Starling, Tide, or Allica Bank. The downside: switching business bank accounts is painful and takes 4-8 weeks.
Why Invoice Finance Usually Wins
| Overdraft | Invoice Finance | |
|---|---|---|
| Grows with business | No — fixed limit | Yes — more invoices = more funding |
| Can be recalled | Yes — on demand | No — contract term |
| Availability (2026) | Shrinking | Growing |
| Security needed | Personal guarantee / debenture | Your invoices |
| Cost | 3-8% EAR (cheaper) | 5-15% effective (more expensive) |
The overdraft is cheaper on paper, but increasingly unavailable. Invoice finance costs more but is accessible, scalable, and can't be pulled without notice. For most B2B businesses, it's a more reliable foundation for cash flow management than hoping your bank will maintain your overdraft.
Oliver Mackman
Director, Market Invoice
Oliver leads Market Invoice's editorial and comparison research. With a background in UK commercial finance, he oversees provider analysis, rate verification, and industry reporting across all verticals.
Last reviewed: 5 April 2026