Monzo business overdrafts and alternatives

Monzo offers business accounts with overdraft options for customers who qualify. Knowing how they work and what other options you have will help you make the best choice. This guide will talk you through everything you need to know.

What are the rules for Monzo business overdrafts?

With a Monzo business overdraft, you can borrow up to a set amount from your business current account. An overdraft lets you access money when your account balance goes below zero, which is different from a loan.

For sole traders, you only pay interest on the amount you use and only for the days you use it. Interest is calculated daily based on your end-of-day balance and charged to your account on the first of the following month. Monzo provides a calculator to work out exactly how much interest might be repayable.

For limited companies, the same daily interest applies, but Monzo also charges an annual arrangement fee just to have the overdraft facility in place. This fee applies regardless of whether you use the overdraft or not. The fee is tiered based on your credit limit:

• £500 to £1,000 limit: £20 annual fee

• £1,001 to £2,500 limit: £50 annual fee

• £2,501 to £5,000 limit: £100 annual fee

Limited companies are also required to provide a personal guarantee when applying.

Monzo business overdrafts are arranged overdrafts, which means you set the limit with Monzo ahead of time. You can ask for one when you open your account or apply for one later through the app.

Who can get a Monzo overdraft?

Sole traders and limited companies with a Monzo business account can apply, but the eligibility rules differ by business type.

If you are a sole trader, there is no minimum time you need to have been a customer before applying. The maximum overdraft limit is £3,000, and there are no arrangement fees.

If you are a limited company, you must have had your Monzo business account open for at least 30 days before applying. The maximum overdraft limit is £5,000, and annual arrangement fees apply as outlined above. A personal guarantee is required.

In both cases, Monzo checks your income, account history, credit score, and general financial health. Different businesses have different limits; Monzo might give one business £500 and another £5,000 depending on how they assess things. As your business grows, the limit can go up.

What are the interest rates?

Interest rates differ depending on your business type. For sole traders, Monzo charges an EAR of 29% or 39%. For limited companies, the rates are 19%, 29%, or 35.9%. The rate applied to your account will depend on Monzo's assessment of your circumstances.

Interest accrues daily and is charged monthly. Because rates vary and are subject to change, we'd recommend checking the current rates directly with Monzo before applying.

For sole traders, there are no fees beyond interest. For limited companies, the annual arrangement fee is an additional cost to factor in, as it is charged whether or not you use the facility.

Other options for Monzo business overdrafts

Overdrafts are useful in some situations, but other types of finance may be better for you.

Small business loan: If you need a larger sum for a specific reason, a small business loan lets you pay it back in instalments over a set period of time. 

Short-term loans are great when you need money fast but can pay it back in 6 to 12 months. 

FlexiPay is a way to pay for specific costs (like VAT bills or supplier payments) without eating into your overdraft. You can pay back on your own schedule with clear costs and no hidden fees. It's especially helpful for expenses that don't fit neatly into monthly cash flow.

Business cash back credit card can cover regular business expenses and earn rewards. Interest-free periods give you breathing room, and tracking spending by category makes accounting easier. Many cards offer cash back or other perks that overdrafts don't.

Each choice meets a different need. Overdrafts are good for short-term changes in cash flow. Loans work well for planned investments. FlexiPay suits specific large payments. Credit cards are good for everyday business expenses.

How to pick the best finance option for your business

An overdraft might be the best choice for filling gaps between paying suppliers and receiving customer payments, managing predictable cash flow fluctuations, or covering small unexpected costs that your next receipt will clear.

A loan or asset finance might be better for larger purchases such as equipment. When you need a fixed amount for a clear purpose, want predictable monthly payments, or need more than an overdraft limit would allow.

FlexiPay suits specific large bills like VAT or a major supplier payment, where you want reliable repayment terms without touching your overdraft. A credit card works well for regular business costs when you can clear the balance monthly and want to earn rewards on business spending.

Overdrafts are safety nets, not growth funding. If you keep using your overdraft, it may be time to look into other options.

Alternatives than expensive overdrafts

Monzo overdrafts work for very short-term needs, but at 19% to 39% EAR they can be costly for anything other than emergencies. Funding Circle may have more suitable products to suit your business needs.

FlexiPay for short-term needs: FlexiPay gives you breathing room at a lower cost when you need to pay for something with zero compound interest. Pay suppliers in advance and pay back over 1 to 12 months with a single flat fee of 1.99% per use, no hidden fees, no interest, and your credit is recharged after each payment. FlexiPay's flat fee structure could help you save money, especially on planned costs like VAT bills or supplier payments.

Loans for longer-term needs: Funding Circle business loans range from £10,000 to £750,000 with interest rates starting at 6.9% per year, significantly less than Monzo’s overdraft rates. You can apply in around 7 minutes and get a decision. There are no early repayment fees, and fixed monthly payments mean you can budget with confidence. Funding Circle supports the finances of more than 110,000 businesses in the UK.

Are you ready to stop paying high overdraft fees?