Glossary
Overdraft
A revolving limit on the trading account that flexes with the cash cycle. Working capital cover, not a way to fund long-term assets.
In plain English
An overdraft lets the trading account run below zero up to an agreed limit, with interest charged only on the drawn balance. Used properly it swings: drawn when stock is bought and wages fall due, back in credit when customers pay.
An overdraft that never returns to credit has stopped being an overdraft. It has become hardcore debt, expensive term borrowing wearing the wrong structure, and it usually signals that the business is funding something permanent, losses or assets, with money designed for timing gaps.
Why a lender cares
Lenders read overdraft behaviour like a cardiogram: a swinging balance is a healthy cash cycle, a flatlined one is a structural problem. Sizing the limit honestly means measuring the actual gap between paying suppliers and getting paid, which is precisely what the cash-cycle test in our modelling does. The right limit is a calculated number, not a round one.
Where this term takes you
Reading up because a deal or a facility is on the table? One call with Nicholas gets you a straight read on your numbers, free.
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