Your Bank Cut Your Business Overdraft Limit: What to Do in the First 48 Hours
Business Owners Hub
Overdraft reduction · Excess drawing · Replacement timing
The bank has lowered the limit and the effective date is fixed. This guide covers what the notice means, what happens if your balance is above the new limit, what to protect in the first 48 hours, and how to replace the lost headroom without creating a second problem.
Quick Answer
If your bank reduces a business overdraft limit, the new ceiling applies from the effective date stated in the notice, subject to the terms of your facility. A reduction is not automatically the same thing as a default or a recall.
If your balance will be above the new limit, the difference becomes an excess. There is no single Australian grace period: current published lender terms range from immediate repayment to a seven-day excess period, and extra interest or fees can apply while you remain above the limit.
Today, get four facts in writing: the new limit, the effective date, the current excess, and whether the bank will honour payments while the account is above the limit. Then ask for a temporary excess or staged reduction while you build the replacement in parallel.
Also called: a facility limit reduction or a limit review letter. This page is about a business overdraft on a trading account, not a personal transaction account overdraft.
| What happened | What matters first | Start here |
|---|---|---|
| The letter arrived and the effective date has not passed | Work out whether your drawn balance will be above the new limit on that date and how many clear business days remain. | What the reduction notice means |
| The effective date has already passed | Confirm the amount of any excess and the exact fees or excess interest now applying under your facility. | What happens above the new limit |
| A direct debit or supplier payment bounced | Find the next payments due, confirm whether the bank is tolerating the excess, and contact the failed-payment recipient. | If a payment has already bounced |
| Payroll, super or tax is due before the problem is fixed | Protect obligations that carry consequences beyond a normal trade debt and get your accountant involved today. | The first 48 hours |
| You need another lender before the old facility closes | Check the existing security and consent clauses before a second lender takes security or registers on the PPSR. | Running a second facility |
| The letter demands repayment or says the facility is recalled | This is no longer just a limit reduction. Get legal advice promptly. | What to do when a facility is recalled |
Can a bank reduce my business overdraft limit, and what does the letter mean?
Yes, if the facility terms give the bank that right. The important point is not that you agreed to the reduction on the day the letter arrived. It is whether the power to reduce or cancel the limit, the notice method and the effective date were already built into the documents you signed.
A reduction changes the amount you are allowed to draw. It does not automatically mean you have missed a payment, defaulted, or had the whole facility recalled. Read the notice next to your letter of offer and facility terms, and pull out five things before you call the bank: the old limit, the new limit, the effective date, the reduction or cancellation clause, and the notice clause.
Business overdrafts are commonly structured as on-demand facilities. The 2025 Banking Code of Practice says a bank may not be required to give notice when it requires repayment of an overdraft or on-demand facility. That is why your own contract matters more than a general rule. If you want the underlying product mechanics first, read how a business overdraft works.
Source: Australian Banking Association, 2025 Banking Code of Practice, paragraph 85. Read 2 September 2026.
Is this a business overdraft or a personal overdraft?
Check the account named in the letter before relying on anything you find in search. Personal transaction-account overdrafts and business-purpose overdrafts do not sit under the same credit rules. Consumer protections generally do not apply to a business-purpose facility in the same way, although eligible small businesses can still have separate protections through the Banking Code, AFCA and the unfair contract terms regime.
| What to check | Business overdraft on a trading account | Personal transaction account overdraft |
|---|---|---|
| Account holder | A company, trust, partnership, sole trader or trading entity. | An individual using the account for personal purposes. |
| Documents | A commercial letter of offer and business facility terms, often with guarantees or security. | A consumer credit contract and consumer disclosure documents. |
| Consumer credit regime | Generally not the same regime as personal consumer credit. Separate small-business protections may still apply. | Consumer credit protections and hardship rules can apply. |
| What this guide covers | This column. | Speak to the lender's hardship team or a financial counsellor for consumer-credit help. |
What if the clause looks one-sided or the notice does not match the contract?
That is a legal question, but there is a real small-business unfair contract terms regime. ASIC says the protections can apply to standard-form financial contracts where the small business has fewer than 100 employees or turnover below $10 million and the upfront price for the financial product or service does not exceed $5 million. ASIC specifically identifies broad unilateral variation rights as a type of term that may be unfair in some circumstances.
That does not mean every painful reduction is unlawful, and it is not a reason to stop performing under the facility. If the notice appears inconsistent with the clause, or the clause gives the lender a very broad power with no practical way to exit, put the notice and facility documents in front of a solicitor.
Source: ASIC, Information Sheet 211, Unfair contract term protections for small businesses. Read 2 September 2026.
What happens if my business overdraft is above the new limit?
The amount above the new limit becomes an excess, but there is no single Australian grace period for clearing it. Your facility terms decide the deadline. Current published lender terms differ: one major bank requires an unauthorised excess to be repaid immediately, while another publishes a seven-day period for its unsecured business overdraft.
Overdraft excess, in one sentence: the amount by which your drawn balance exceeds the approved limit. Extra interest or fees may apply while the account remains above the limit, and the bank may refuse further transactions if it does not agree to tolerate the excess.
The pricing also differs by product. One major bank currently publishes an excess drawing interest rate that applies for each day a business overdraft limit is exceeded, and its support page says excess drawing rate interest applies after a limit reduction if the account goes above the new number. The exact rate and any approval fee are facility-specific, so use the figures in your own documents or ask the bank to confirm them in writing.
Sources: ANZ, Unsecured Business Overdraft, excess FAQ. NAB, Business Lending General Terms, clause 4.2. Commonwealth Bank, Change a business overdraft limit and business overdraft excess drawing rate. All read 2 September 2026.
Three separate charges can run at once, which is the part most readers do not expect, because a reduction does not feel like a demand. One major bank's current terms and conditions for business finance require excess drawing interest "on any amount which exceeds your Limit", charged "daily on the overdrawn amount from the date it became overdrawn until the overdrawn amount is paid". On the same bank's published product terms, where the account sits above the approved limit the line fee "will be charged on the total balance, meaning it will apply to your approved overdraft limit plus the amount you exceed the limit by", and on cancellation of a limit the line fee is payable to the cancellation date. So the excess can attract ordinary interest on the drawn balance, a separate excess rate on the part above the limit, and a holding fee struck on a larger base than the limit itself. Check the equivalent clauses in your own documents, because the shape is common but the wording is not universal.
Sources: Commonwealth Bank, Current Terms and Conditions for Business Finance, clause A3.1.3A(b) and (d), issued 30 July 2026. Commonwealth Bank, Business Overdraft, current as at 15 May 2026. Both read 2 September 2026.
| Balance position | What it means | What to do now |
|---|---|---|
| Under the new limit | You are not in excess, but your working-capital buffer has shrunk. | Map the lowest point in the last 12 months of trading against the new limit and decide whether the facility is still large enough. |
| At the new limit | You have no headroom. The next outgoing payment may push the account into excess if the bank permits it, or may be refused. | List every payment due before the next major deposit and ask the bank whether any temporary excess has been approved. |
| Above the new limit | The excess is subject to the repayment and pricing rules in your facility terms. Extra interest or fees may already be running. | Get the exact excess, the repayment deadline and the bank's transaction position in writing today. |
What if a payment has already bounced?
Treat the dishonour as evidence that the reduced limit is already affecting operations. Confirm the new limit and effective date, ask whether the account is currently being allowed to exceed the limit, and identify every payment queued before the next meaningful deposit.
Then contact the recipient of the failed payment before the failure creates a second problem. A stopped supplier account, lapsed insurance policy, missed lease payment or failed payroll run can matter far more than the dishonour fee itself. Keep the bank notice and the dishonour record together in case the notice later needs to be reviewed against the facility terms.
If you need the underlying cost mechanics, see business overdraft rates, fees and excess pricing.
What should I do in the first 48 hours after my overdraft limit is reduced?
Use the first 48 hours to stop avoidable failures, get exact numbers and protect the obligations that have consequences beyond an ordinary supplier debt. Do not move money blindly just because the account is under pressure. Build a two-week cash map first and get your accountant involved if payroll, super, tax or director-duty issues are in the window.
1. Lock the facts. Get the new limit, effective date, current excess and the bank's current position on honouring payments in writing.
2. Map the next 14 days. Put every scheduled outgoing beside every expected deposit, including payroll, super, tax, insurance, leases and critical suppliers.
3. Stop preventable dishonours. Reschedule or renegotiate payments that can move by agreement before they present.
4. Run two tracks at once. Ask the bank for temporary time while preparing a replacement facility, rather than waiting for one path to fail before starting the other.
| Obligation | Why it needs separate attention | Who to involve |
|---|---|---|
| Wages | Employee payment obligations are not the same as negotiating a later date with an ordinary trade supplier. | Your accountant or payroll adviser, and legal advice if insolvency or director-duty issues are emerging. |
| Superannuation | From 1 July 2026, Payday Super generally requires super to be paid on payday and received by the employee's fund within seven business days, subject to limited exceptions. | Your accountant, payroll provider or registered tax agent. |
| Insurance, licences and essential leases | A failed payment can create an operational problem bigger than the amount owing. | The counterparty before the payment presents. |
| Tax and BAS liabilities | Eligible businesses may be able to arrange a payment plan, but interest can continue and future obligations still need to be met. | Your registered tax or BAS agent and the ATO. |
| Trade suppliers | Some can be moved by agreement. Early contact preserves more options than a surprise dishonour. | The supplier or credit manager directly. |
What changed for super from 1 July 2026?
Payday Super makes super a much shorter cash-flow clock than it used to be. From 1 July 2026, employers generally pay super at the same time as salary and wages, and the contribution needs to reach the employee's super fund within seven business days unless an extended timeframe applies. If the overdraft reduction threatens that timing, tell your accountant before payday, not after the contribution is late.
For the working-capital effect rather than the compliance rule, see how Payday Super changes the cash-flow gap around each pay run.
Sources: Australian Taxation Office, Payday Super and Payday Super has started. Read 2 September 2026.
What if BAS or another ATO payment is due at the same time?
A payment plan can be a non-borrowing cash-flow lever for an eligible business, but it is not automatic and it does not stop interest on the unpaid tax debt. The ATO says eligible businesses can arrange instalment plans, and businesses owing $200,000 or less can generally use Online services for business, an agent or the automated phone service to set one up. If the amount is higher, the ATO directs businesses to call its lodge and pay service.
This is not a reason to divert money from another obligation without advice. It is simply one of the conversations to start early when the overdraft reduction and a tax due date land together.
Source: Australian Taxation Office, Paying a company tax debt and payment plan options. Read 2 September 2026.
When does this stop being a funding problem and become a solvency issue?
If the company cannot pay debts when they are due, the question has moved beyond choosing a replacement facility. ASIC defines a company as insolvent when it cannot pay its debts as they fall due, and specifically lists difficulty keeping within overdraft limits, overdue taxes and problems paying suppliers as warning signs. Directors have a duty to prevent insolvent trading.
One bounced payment does not by itself prove insolvency. The trigger for professional advice is the wider pattern: payroll, super, tax, suppliers or finance commitments cannot be met when due and there is no reliable near-term source of cash to clear them. At that point, get advice from an appropriately qualified insolvency accountant, registered liquidator or lawyer before taking on more debt just to move the due date.
Sources: ASIC, Insolvency for directors and Obligations of company officeholders. Read 2 September 2026.
What should I ask the bank today?
Ask for four facts, not a general discussion. Request the exact new limit and effective date, the current excess amount, the date and rate from which excess pricing applies, and whether payments above the limit will be honoured, refused or tolerated temporarily.
Then ask the fifth question that decides the rest of the file: what drove the reduction? Account conduct, current financials, security, sector appetite and a scheduled review each create a different replacement problem. If the review has not happened yet, the pre-review ground belongs to the 60-day overdraft facility review plan. This guide is for the aftermath.
Can I ask for more time, a staged reduction or a temporary excess?
Yes. You can ask for a temporary excess, a later effective date or a staged reduction, but approval is a fresh commercial decision by the bank, not an entitlement. Make the request in writing and make it specific enough for a credit officer to approve or decline.
There is direct evidence that temporary excesses are a real facility mechanism. One major bank's current business lending terms say a customer can ask in advance to temporarily exceed a limit, subject to agreement and possible fees, with the excess then repayable when requested or on the agreed date.
Source: NAB, Business Lending General Terms, clause 4.2. Read 2 September 2026.
The amount: the exact temporary limit or excess you need.
The date: how long you need it for, or the dates of each staged reduction.
The exit: the receivable, asset sale, seasonal turn, equity injection or replacement facility that clears the excess.
The evidence: attach the debtor ledger, contract, statements or indicative replacement terms rather than promising to send them later.
Will the bank restore the old overdraft limit?
It can happen, but there is no published Australian restoration rule or normal timeframe. Treat restoration as a fresh credit decision rather than the default outcome of an appeal. Ask what drove the reduction, what evidence would have to change, and when the bank would next be prepared to review the limit.
The practical strategy is still two tracks: ask for time or reconsideration while building an external replacement. Do not spend the whole deadline waiting for the bank to reverse a completed decision.
Can AFCA help if the process or notice looks unfair?
Potentially, but separate the bank's credit judgment from the way the facility was managed. AFCA generally cannot review a financial firm's assessment of the credit risk posed by a borrower, subject to exceptions including maladministration in lending, loan management or security matters and financial difficulty. It can also consider whether a firm has acted consistently with relevant law, codes and good industry practice.
| Question | Answer |
|---|---|
| Where does 14 calendar days come from? | AFCA's account-closure factsheet says it generally considers whether a financial firm gave sufficient notice, generally 14 calendar days. |
| What is that guidance written for? | A firm stopping a transaction account, credit facility or merchant facility. |
| Is a limit reduction the same thing as closure? | No. A lower limit is not the same as ending the facility, so 14 days is a comparison point, not a specific rule governing your reduction notice. |
| What document matters most? | Your own letter of offer and facility terms, plus any law or code that applies to the bank and the facility. |
AFCA also publishes the decisions it makes. If you want to see how it has actually treated complaints about business facilities rather than how it describes its process, its searchable published decisions are the place to look.
Sources: Australian Financial Complaints Authority, Factsheet: Account closure, How we resolve complaints and our Rules, and updated Rules and Operational Guidelines published 12 March 2026. Read 2 September 2026.
How quickly can I replace a reduced business overdraft?
Sometimes within days, but the deadline is decided by the slowest step in the file, not by the lender's advertised decision time. A replacement has to clear assessment, credit, documents, any security work, signing, identity checks and funding before the bank's effective date if it is going to solve the problem in time.
If the deadline is days rather than weeks, run the time request and the replacement together. A rushed application can be worse than a slow one if it creates a second decline, a fresh enquiry and no funded facility.
What actually slows an overdraft replacement?
The common delays are missing statements, late tax lodgements, undisclosed facilities, complicated guarantors and security that another lender already holds. Signing and identity checks are easy to underestimate because approval sounds like the finish line when it is only the middle of the process.
Have the last 12 months of trading statements, current financials or management accounts if requested, tax position, debtor and creditor information, every existing facility, the reduction notice, and the entity and guarantor details ready before the first submission. The stage-by-stage speed limits are covered in how fast a business overdraft can actually be funded.
Can I have a second cashflow facility while the old overdraft is still open?
Yes, sometimes. The obstacle is usually the contract and security position, not the mere fact that two facilities would exist at once. If the existing overdraft is unsecured, a second facility may be simpler. If the current bank holds a GSA, mortgage or other security, the next question is what your documents allow and what ranking the new lender requires.
A second lender can see PPSR registrations and will assess where it would rank. The PPSR explains that when more than one secured party has an interest in the same property, priority rules determine who has the first right to enforce. That does not mean you should simply grant a second security interest and sort it out later.
In practice, if both lenders need security over the same assets, the incoming lender may require the existing bank to consent to the new security, sign a deed of priority or other subordination arrangement, or be paid out at settlement. A deed of priority is an agreement between secured parties about the order in which their competing security interests will rank or be enforced. Do not assume the existing bank must agree to one.
Current business lending terms from one major bank expressly require consent before a borrower grants another security interest over assets already secured to that bank. Your own documents may be different, which is why the words to search for are security interest, further security, permitted security, negative pledge, consent, deed of priority, cross-default and priority.
For the security-package mechanics, read what a GSA, director guarantee and PPSR registration let a business lender take.
Sources: Personal Property Securities Register, Which security interest has priority?. NAB, Business Lending General Terms, clauses dealing with security interests and consent. Read 2 September 2026.
Should the replacement even be another overdraft?
Not automatically. Replace the cash-flow problem, not the product label. A business that repeatedly swings below and back above zero may still fit an overdraft. Lumpy planned draws can fit a line of credit better than an overdraft. A fixed working-capital gap can be better suited to a working capital facility. If the problem is timing of receivables, a receivables-linked structure may solve a different problem from either.
If you are considering an unsecured replacement, read what an unsecured business overdraft can still require in guarantees and security. If you are comparing revolving structures, the plain definition of a line of credit is the two-minute version.
How do I avoid replacing one cash-flow problem with a worse one?
Slow down when the offer only works because nobody has shown you the annualised cost, the security, the default pricing or the exit. A hard deadline makes fixed daily debits, unclear early-repayment terms and pressure to sign immediately look more acceptable than they are.
Before signing, write down the gross facility, the net amount you actually receive, every establishment and legal cost, the interest calculation method, the security and guarantees, the repayment frequency, default pricing, extension costs and the cost to exit early. If the facility clears this week's excess but creates a larger fixed weekly obligation than the business can service, it has not solved the working-capital problem.
For the application pack itself, use the business line of credit evidence pack as the document checklist.
Does a reduced overdraft limit hurt my credit file or my next application?
A limit reduction is not the same thing as a payment default, but the events around it can still affect the next credit decision. A new lender is likely to care about the account conduct in your statements, including repeated excesses or dishonours, and it may also review commercial credit information, existing security registrations and the directors behind the business.
Do not confuse that with consumer credit reporting. The OAIC says commercial credit is handled differently from consumer credit, although a person's consumer credit report can still record an enquiry where a credit provider accesses it in connection with an application for consumer or commercial credit. Credit enquiries remain on a consumer credit report for five years.
That is why four rushed applications are not a substitute for one matched application. Ask whether a lender or broker will perform a credit enquiry before submitting, disclose the current facility and the reduction notice up front, and submit where the file actually fits. If the reduction followed conduct or credit issues, read the business overdraft after bad credit or a decline guide before resubmitting.
Sources: Office of the Australian Information Commissioner, Commercial credit information, Information on your credit report and What stays on a credit report?. Read 2 September 2026.
Does an overdraft limit reduction mean the bank is going to recall my facility?
Not necessarily. A reduction notice, a non-renewal notice and a repayment demand are different documents with different consequences. The safest way to judge escalation is to read what the letter actually does rather than treating every reduction as the first step in enforcement.
A reduction that leaves the facility in place with a new limit is different from a notice saying the facility will end on a fixed date, and both are different from a demand for full repayment. If the bank is also asking for urgent financials, a valuation, more security or a cure of another default, treat the wider file as more serious and get advice early.
Can a reduced overdraft affect my other facilities with the same bank?
It can, depending on the other facility documents. The reduction itself does not rewrite another contract, but cross-default, security, review and all-monies provisions can connect facilities. The 2025 Banking Code specifically contemplates an on-demand overdraft default also constituting a default under another loan with the same bank, and current major-bank business lending terms contain cross-default language for separate financing arrangements with that bank.
Also search for an all-monies clause or a definition of moneys secured. An all-monies security can secure amounts you owe that lender under other present or future arrangements, rather than being limited to one named facility. That can matter when you ask for a release, refinance one facility or try to leave another facility behind. The exact reach is document-specific, so have a solicitor confirm it if the security package is material to the refinance.
Read every letter of offer, not just the overdraft. Search for cross-default, all monies, moneys secured, security, review, financial information and consent, and ask the bank whether the decision changes anything else in the relationship. For a deeper explanation of the clause mechanics, see how an all-monies clause can extend one security to other debt.
Sources: Australian Banking Association, 2025 Banking Code of Practice, paragraphs 85 to 87. NAB, Business Lending General Terms, cross-default provisions. Suncorp Bank, Business Lending General Terms and Conditions, all accounts clause. Read 2 September 2026.
Is a reduced overdraft limit the same as de-banking?
No. AUSTRAC describes de-banking as financial institutions declining, withdrawing or limiting banking services to customers or sectors because of perceived risk. A lender reducing the size of one credit facility is not, by itself, the same thing as withdrawing banking services from the business.
Source: AUSTRAC, New guidance released on debanking and Financial services for higher-risk customers, updated 23 April 2026. Read 2 September 2026.
| What the letter says | What changed | What to do next |
|---|---|---|
| Your limit is reduced from a stated date | The facility continues, but with less available headroom. | Use this guide. Confirm the excess, ask for time and build the replacement. |
| The facility will not be renewed | The facility is due to end on a fixed date. | Treat the whole approved limit as the amount that must be replaced or repaid by that date. |
| Repayment is demanded or the facility is recalled | The lender is requiring repayment rather than merely changing the limit. | Get legal advice promptly and move to the recalled facility guide. |
| The bank is withdrawing banking services more broadly | This may be a de-banking or relationship-exit issue rather than a simple credit-limit decision. | Ask exactly which products or services are ending and on what dates. |
The order matters. First, establish the new limit, effective date and any excess. Second, protect the next two weeks of payroll, super, tax and critical operating payments. Third, ask the bank for a temporary excess or staged time. Fourth, check the security and consent position before another lender takes security. Then build the replacement that fits the actual cash-flow problem rather than automatically copying the old overdraft.
Key takeaway: the excess is the immediate constraint, the documents decide the rules, and the replacement should solve the cash-flow gap without creating a second one.Frequently Asked Questions
Yes, if the facility terms give the bank that right. A business overdraft is commonly an on-demand facility, but the exact power to reduce or cancel your limit, the notice method and the effective date come from your own letter of offer and facility terms. A limit reduction is not automatically the same thing as a payment default or a facility recall.
There is no single Australian grace period. Current published lender terms differ: one major bank requires an excess to be repaid immediately unless a temporary excess has been agreed, while another publishes seven days for its unsecured business overdraft. Your own letter of offer and facility terms control your account.
Yes, sometimes. A second facility is not automatically ruled out just because the overdraft is still open, but the existing facility documents and security position can stop or reshape the deal. If your bank holds a GSA or other security, check whether your documents restrict additional security and ask the new lender what ranking it needs. A new lender may proceed unsecured, take different security, require bank consent or a priority arrangement, or require the existing facility to be repaid at settlement.
You can lodge a complaint, but AFCA generally cannot review the bank's assessment of the credit risk you pose. It may be able to consider other issues, including maladministration in lending, loan management or security matters, and whether a financial firm acted consistently with relevant law, codes and good industry practice. AFCA's account-closure guidance uses 14 calendar days as a general notice benchmark for closure, but that is not a specific rule for reducing an overdraft limit.
The next step depends on your facility terms and what the bank agrees to do. Excess interest or fees can continue while you remain above the limit, transactions may be dishonoured if the bank does not tolerate the excess, and the bank may later demand repayment or take enforcement action under the facility and security documents. Ask for a temporary excess or staged reduction in writing while you build a replacement, and get legal advice promptly if the letter becomes a demand or recall.
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