Overdrafts, invoice finance, asset finance and cash advances: how each one works and what it costs

Overdraft

How it works. The bank agrees a limit on your business current account. You dip into it and pay it back as money comes in. You pay interest only on the amount you are overdrawn each day.

What it suits. Short gaps between paying bills and getting paid. Bank of Ireland's terms say an overdraft is for a short-term need, or for an account that moves in and out of credit.

What it costs. Published business overdraft rates on 3 October 2026 were 7.85% at AIB, 8.05% at Bank of Ireland and 8% at PTSB, all variable. PTSB charges a €25 facility fee when the overdraft is first used and every year after. Bank of Ireland's facility fee is €50 a year.

What goes wrong. An overdraft is repayable on demand, so the bank can ask for it back. Banks expect the account to be in credit for at least 30 days in the year, and Bank of Ireland's terms add 0.5% to the rate for that year if it is not. Going over the limit can bring referral fees and surcharge interest, though Bank of Ireland has not charged its surcharge since August 2021.

Term loan

How it works. You borrow a fixed sum and repay it in an agreed number of instalments over a set term.

What it suits. A one-off cost that pays for itself over years, such as equipment, a vehicle, a fit-out or a premises. Credit Review, the State body that reviews bank lending decisions, says the term should normally be no longer than the life of what you are buying.

What it costs. Interest, fixed or variable, and sometimes a fee. Published rates on 3 October 2026: 7.45% on AIB's SME fixed rate loan, 7.02% variable at Bank of Ireland on loans up to €120,000, 7.5% variable at PTSB and 6.5% fixed at Microfinance Ireland. Bank of Ireland charges no arrangement fee. PTSB may charge up to 1% of the loan.

What goes wrong. A variable rate can rise. A fixed rate loan can carry a charge if you repay early, though AIB waives it on its loan up to €60,000. The lender may want security or a personal guarantee, and the Central Bank's required warning says a personal guarantor's assets, including their home, may be at risk if the borrower does not keep up repayments.

Invoice finance and invoice discounting

How it works. You sell on credit to other businesses. When you raise an invoice, the finance company advances most of its value straight away: up to 90% at AIB and through PTSB's partner, up to 85% at Bank of Ireland. The rest, less charges, follows when your customer pays.

With invoice discounting you keep collecting the money yourself. With factoring the finance company collects the invoices for you. AIB and Bank of Ireland both describe their facilities as confidential, and you keep control of collecting from your customers.

What it suits. A growing firm with money tied up in invoices to other businesses. It does not suit a shop or cafe that is paid at the till. AIB's version is for firms with a debtor book of at least €250,000 and an ongoing funding need of at least €150,000.

What it costs. Two charges. A discount charge works like interest on the money you have drawn. A service fee covers running the facility. Bank of Ireland adds account and transfer fees. None of the three banks publishes the rates.

What goes wrong. Not every invoice counts. Bank of Ireland leaves out old debts, disputed debts, debts between connected companies and cash sales. The State-backed version has a minimum facility period of 24 months for its lower rates. And invoice finance from the banks' finance arms carries a warning that it is not covered by the Central Bank's consumer protection rules or by a statutory compensation scheme.

Asset finance: hire purchase and leasing

How it works. The finance company buys the vehicle or machine from the supplier and you pay for it over a fixed term, usually 2 to 5 years.

With hire purchase you own the asset once the last payment and a small purchase fee are paid. You pay the VAT at the start and claim it back from Revenue. With leasing you do not automatically own it. VAT is charged on each payment, and at the end you can extend the lease, buy the asset or give it back.

What it suits. Vans, trucks, tractors, plant and other equipment. Bank of Ireland finances from €7,000 and says you do not need to bank with it. PTSB starts at €10,000 and asks for a 10% deposit. Asset finance and invoice finance are also offered under the State's SBCI schemes, delivered through partner lenders.

What it costs. A fixed rate, quoted case by case, plus set fees. The documentation fee on hire purchase is €63.49 at AIB and at Bank of Ireland, and €120 at PTSB. Each also charges a purchase fee with the final payment.

What goes wrong. You do not own the goods until the final payment is made. You have to insure and maintain the asset throughout. A fixed rate agreement can carry charges if you end it early. PTSB notes that the cost of credit is higher over a longer term.

Merchant cash advance

How it works. You get a lump sum and repay it from a fixed percentage of your daily card takings. You pay more on busy days and less on quiet ones. It is not always a loan in legal terms. GRID Finance calls its agreement a Receivables Purchase Agreement, because it is buying your future sales.

What it suits. A business that takes much of its money by card and needs funds quickly for stock or a short gap. GRID Finance's advance against card sales runs from €10,000 and is for businesses trading at least 9 months. Linked Finance offers one of up to €150,000 over up to 12 months, for businesses with turnover over €100,000.

What it costs. It depends on the lender. GRID sets a fixed cost at the start and says its facilities are not priced as an APR. Its published example: an advance of €10,000 over an estimated 12 months carries an arrangement fee of €500 plus VAT and a discounting cost of €1,401.18. Linked Finance quotes an interest rate, and charges the fees described under peer-to-peer lending below.

What goes wrong. Where the cost is fixed at the start, clearing the advance faster does not automatically make it cheaper, though GRID says facilities activated since 11 May 2026 may qualify for a rebate if cleared early. A fixed cost is hard to set beside a loan rate, so ask for the total cost in euro. The repayments come out of your takings every day. Both lenders ask for a personal guarantee. And it is short-term money: both run for up to 12 months.

Peer-to-peer lending

How it works. An online platform puts your loan request in front of investors, who may be individuals, companies or institutions. If enough of them fund it, you get a term loan and repay it monthly by direct debit. A platform that does this needs authorisation from the Central Bank as a crowdfunding service provider under EU rules.

What it suits. An established business that wants a quick answer on an unsecured loan. Linked Finance, which calls itself a peer-to-peer business lender, lends up to €500,000 over up to 5 years. Its FAQ says the standard loan is for businesses trading at least 12 months, with turnover over €100,000.

What it costs. Interest plus fees. Linked Finance quotes rates from 7.20% to 17.25%, depending on the grade it gives your business. It charges an application fee of €125 and a completion fee of up to 6% of the loan.

What goes wrong. The fees are deducted before the money reaches you, so you receive less than the loan you are repaying. A personal guarantee is required. If the request is not fully funded in time, it can go ahead at a lower amount, or be withdrawn if it has not reached 75%.

Business credit cards

How it works. A card with a credit limit for business spending. Bank of Ireland says its business card must be repaid in full each month by direct debit, with no option to pay less. AIB also collects everything in one monthly direct debit.

What it suits. Day-to-day costs, and keeping business spending apart from personal spending. Bank of Ireland gives up to 37 days of interest-free credit on purchases.

What it costs. An annual fee for each card, €31 at Bank of Ireland and €19.05 at AIB, plus Government stamp duty of €30 a year on each card. Bank of Ireland's published interest rate is 17.39% variable. Cash withdrawals and purchases outside the euro carry extra fees.

What goes wrong. At 17.39%, the rate is more than double the banks' published term loan rates if a balance is ever left unpaid. The direct debit takes the whole balance each month, so a card gives you weeks of credit, not months. Bank of Ireland warns that a business card may affect the owner's personal credit score if payments are not kept up.

Before you sign anything

Work out the total cost in euro, not only the rate. Add the fees, and ask what happens if you repay early. You can compare the monthly cost of two loan offers.

Check what protects you. The Central Bank's rules on lending to small firms cover loans, overdrafts, hire purchase, leasing and invoice discounting from regulated lenders. They give you written reasons for a refusal and a right of appeal. Finance from an unregulated company does not carry those protections. The banks' pages carry a warning where that applies. Business credit cards are covered only in part.

When you are ready to apply, read our step-by-step guide to applying for a business loan. It covers what lenders check and what to prepare.

We take no commission or payment from any lender. This page is information only, not financial advice.

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