{"id":173433,"date":"2022-08-04T02:08:52","date_gmt":"2022-08-04T01:08:52","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=173433"},"modified":"2025-07-02T00:41:00","modified_gmt":"2025-07-01T23:41:00","slug":"overdraft-agreement","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/commercial-contracts\/overdraft-agreement\/","title":{"rendered":"Key Terms of an Overdraft Agreement in England"},"content":{"rendered":"

For many businesses, the first kind of loan they receive from a bank is an overdraft agreement. This agreement allows your business to draw more cash from its account than it has on hand. While overdrafts are similar to other kinds of loans, there are some expectations to note. This article will explain the key terms of an overdraft agreement.\u00a0<\/span><\/p>\n

Overdraft Agreements<\/span><\/h2>\n

An overdraft is an agreement between your business and its bank that your business can draw from its current account more cash than it has on hand.\u00a0<\/span>Overdrafts smooth over any interruptions in a business\u2019 cash flow. From a financial point of view, this is quite advantageous \u2014 if not necessary \u2014 because your business may need to pay expenses such as wages or invoices, even when you are not making sales or profits.\u00a0<\/span><\/p>\n

Notably, most overdrafts are unsecured. This means the bank does not have rights to your company\u2019s property. Most other bank loans tend to be secured.\u00a0<\/span><\/p>\n

Uncommitted Facility\u00a0<\/span><\/h3>\n

Most loan agreements are \u201ccommitted\u201d. However, overdraft agreements usually are not.\u00a0<\/span><\/p>\n

For your business, this means two things:<\/span><\/p>\n

    \n
  1. the bank is not obligated to honour any charges against your current account; and<\/span><\/li>\n
  2. the bank can demand you repay the outstanding amount immediately, even if you are not in breach of any terms of the agreement.\u00a0<\/span><\/li>\n<\/ol>\n
    \n

    In many respects, this is merely a technical point of law. Though the bank has the legal right to refuse to honour any overdraft and demand immediate payment, this rarely happens in practice.\u00a0<\/span><\/p>\n<\/div>\n

    We will now go on to evaluate some of the key terms of an overdraft agreement.\u00a0<\/span><\/p>\n

    Terms Unique to Overdrafts\u00a0<\/span><\/h2>\n

    The Facility\u00a0<\/span><\/h3>\n

    Overdraft agreements tend to be unsecured and uncommitted, which is usually not the case for other business bank loans. Typically, these elements will be set out in a single term, called \u201cThe Facility\u201d.<\/span><\/p>\n

    In an overdraft facility, it will specify three things:<\/span><\/p>\n