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Updated August 2026

Business Overdraft up to Rs 25 Crore - Pay Interest Only on What You Use

Revolving credit limit for cash-flow management. Interest charged only on the amount + days used - not on the full limit. OD Against FD sanctioned same-day. India’s most flexible business credit product.

Rs 25 CrMax Limit
9.15%+Interest
Pay OnlyOn Usage
Same DayOD Against FD
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What is Overdraft

Business Overdraft Facility Explained

A Business Overdraft (OD) is a revolving credit facility sanctioned to your current account by a bank or NBFC. Once your OD limit is set, you can withdraw up to that limit from your current account - even when your account balance is zero. Interest is charged only on the amount you actually use and only for the days you use it. When you deposit money back, your outstanding drops immediately and interest stops accruing on the repaid portion.

This structure makes OD dramatically more cost-efficient than a term loan for fluctuating cash-flow needs. On a Rs 10 lakh term loan at 12%, you pay interest on Rs 10 lakh every day for the whole tenure - roughly Rs 1.2 lakh in year one. On a Rs 10 lakh OD limit at 12% where you use an average of Rs 4 lakh through the year, you pay interest on Rs 4 lakh - only Rs 48,000. The savings are real and substantial.

In India, business OD comes in several flavours: OD Against FD (same-day, cheapest), Unsecured OD (fastest for premium banking customers), LAP-OD (property-backed for large limits), Cash Credit (working capital variant against inventory + debtors), and OD Against Insurance/Shares. MahadevX helps you pick the right OD type + lender + limit for your specific cash-flow pattern.

OD Types

6 Types of Business Overdraft

Each OD variant serves a different use-case. Choose based on collateral availability, speed need, and limit size.

OD Against FD

Best for: instant liquidity + you have an FD. Limit: up to 90% of FD. Rate: FD rate + 1-2%. Speed: same-day. Cheapest OD available.

Unsecured Business OD

Best for: premium banking customers. Limit: up to Rs 50 lakh. Rate: 10.75%-15%. Requires CIBIL 750+ + strong current-account activity.

LAP-OD (Property-Backed)

Best for: large revolving limit. Limit: up to Rs 25 crore. Rate: 9%-13%. LAP structure with revolving flexibility.

Cash Credit (CC)

Best for: working capital + inventory-heavy businesses. Limit: based on drawing power (stock + debtors). Rate: 9.15%-14%. Monthly stock statement required.

OD Against Insurance

Best for: LIC endowment policyholders. Limit: up to 90% of surrender value. Rate: 9%-11%. Only surrender-value plans qualify.

OD Against Shares / MF

Best for: investors with equity holdings. Limit: 50%-60% of holding value. Rate: 9%-13%. Higher haircut due to market volatility.

Key Features

Why Choose a Business Overdraft

Pay Only on Usage

Interest charged only on amount drawn + days used. Idle limit costs nothing (usually).

Revolving Credit

Use, repay, re-use unlimited times within limit. No re-application needed.

Same-Day (OD Against FD)

OD Against FD sanctioned in 2-4 hours - the fastest business liquidity possible.

No Fixed EMI

No monthly EMI obligation. Repay flexibly as cash flow allows.

Up to Rs 25 Crore

LAP-OD goes up to Rs 25 crore for large enterprises. High revolving limit possible.

Competitive Rates

OD Against FD from 8%+. LAP-OD from 9%+. Cheaper than credit card + personal loan.

Auto-Renewal

OD limits renew annually if banking + repayment behaviour is good. Enhancement possible.

Section 37 Deductible

Interest paid fully deductible as business expense. Effective post-tax cost even lower.

Interest Calculation

How OD Interest is Calculated (Real Example)

Understanding OD interest calculation shows why it is so cost-efficient. Say you have a Rs 10 lakh OD limit at 12% p.a. Your daily rate = 12% / 365 = 0.0329%. Interest is charged on the closing balance each day.

Month 1: Day 1 - draw Rs 3 lakh. Day 5 - deposit Rs 2 lakh (outstanding drops to Rs 1 lakh). Day 15 - draw Rs 4 lakh (outstanding Rs 5 lakh). Day 25 - deposit Rs 3 lakh (outstanding Rs 2 lakh). Day 30 - draw Rs 1 lakh (outstanding Rs 3 lakh). Bank calculates interest on each day’s outstanding at daily rate, sums it up, and debits your OD account on month-end.

Contrast with a term loan: on a Rs 10 lakh term loan at 12% for 60 months, your first month’s interest is a flat Rs 10,000 (12% of Rs 10 lakh divided by 12). On the OD above, your first month’s interest might be Rs 2,500-3,500 depending on the exact daily pattern. That is a 65%-75% saving on interest cost - and it compounds over the year.

Eligibility

Business Overdraft Eligibility

Banking Relationship

Existing current-account holder with 6-12 months of transaction history. New customer OD is rare.

Business Vintage

Banks: 2-3 years. NBFCs: 12+ months. OD Against FD: no vintage required.

Current Account Turnover

Strong monthly credits + regular business flow. Rs 30 lakh+ monthly credit for Rs 10 lakh+ OD.

CIBIL Score

Unsecured OD: 750+ needed. Secured OD (LAP/FD): 650+ workable. Below 650: only OD Against FD or gold-backed OD.

Collateral (Secured OD)

FD, property, insurance, gold, shares - depending on OD type. Unsecured OD: no collateral but strict eligibility.

Documented Business

GST registration + regular filings. ITR (for larger OD). Constitution documents + Udyam.

Documents

Documents Required

Standard Business + KYC Documents
PAN + Aadhaar of proprietor/partners/directors. Business PAN + GST + Udyam. Constitution documents (partnership deed / MOA / AOA). 12 months current-account bank statements. 2 years ITR + audited financials (for larger OD).
For OD Against FD
Original FD certificate. Lien-marking authorisation signed. KYC. That is it - no ITR, no CIBIL check, no business docs typically. Available with the bank where the FD is held. Same-day disbursal.
For Unsecured OD
Standard business docs + strong current-account statement showing consistent turnover. Credit score check. FOIR calculation with existing loans. Requires premium banking profile.
For LAP-OD (Property-Backed)
Complete property title documents (sale deed, parent deeds 30-year chain, EC, property tax receipts, approved plan). Legal opinion + valuation. All standard LAP documentation applies.
For Cash Credit
Stock statement (monthly submission required). Debtor + creditor list. Business turnover projections. Sales pipeline. Working capital cycle explanation. Refer Working Capital Loan page for CC-specific detail.
Top Lenders

Best Lenders for Business Overdraft

HDFC Bank
Best private-bank unsecured OD product. Fast digital sanction for existing HDFC current-account holders. Preferential terms for premium banking customers.
Rate10.75% - 15.00%
MaxRs 50 Lakh
Kotak Mahindra Bank
Strong OD product for growing SMEs. 811 business account holders get pre-approved OD offers based on transaction history.
Rate11.00% - 15.50%
MaxRs 25 Lakh
Axis Bank
Competitive OD rates for Tier-1 and Tier-2 customers. Digital OD product with fast disbursal for pre-approved customers.
Rate11.00% - 15.00%
MaxRs 25 Lakh
State Bank of India
Best PSU for OD Against FD (widely available). Also strong Cash Credit product for MSME manufacturing.
Rate9.15% - 14.00%
MaxRs 25 Cr (LAP-OD)
Bajaj Finance
Fastest NBFC OD for GST-registered businesses. Digital-first product. 48-hour sanction for pre-approved customers.
Rate12.00% - 18.00%
MaxRs 25 Lakh
IDFC First Bank
Excellent digital OD product. Sector-specific pricing. Strong for tech-forward small businesses with GST + banking data.
Rate11.50% - 15.50%
MaxRs 25 Lakh
Interest Rates

Business Overdraft Rates by Type (August 2026)

OD TypeInterest Rate (p.a.)LimitSanction Speed
OD Against FDFD rate + 1% - 2%85% - 90% of FDSame day
OD Against Insurance9.00% - 11.00%Up to 90% of surrender3-7 days
OD Against Shares / MF9.50% - 13.00%50% - 60% of holding3-5 days
Unsecured Business OD (Bank)10.75% - 15.00%Rs 50 Lakh5-15 days
Unsecured Business OD (NBFC)12.00% - 18.00%Rs 25 Lakh3-7 days
LAP-OD (Property-Backed)9.00% - 13.00%Rs 25 Cr20-45 days
Cash Credit (CC)9.15% - 14.00%Based on drawing power15-30 days
Application Process

How to Apply for a Business Overdraft

1

OD Type Selection

Against FD / Unsecured / LAP-OD / CC based on your profile.

2

Lender Match

MahadevX matches you to best-rate lender across 100+.

3

Document Submission

Business + banking + collateral docs (as applicable).

4

Underwriting

OD Against FD: instant. Unsecured: credit review. LAP-OD: legal + valuation.

5

Sanction

OD limit sanctioned + linked to your current account.

6

Activation

Start drawing from current account up to the OD limit. Interest starts accruing on usage.

Pros & Cons

Is a Business Overdraft Right for You?

Advantages

  • Interest only on amount + days used
  • Revolving - use, repay, re-use freely
  • Same-day sanction (OD Against FD)
  • No fixed EMI obligation
  • Perfect for fluctuating cash flow
  • Auto-renewal on good behaviour
  • Section 37 tax-deductible interest
  • Multiple types for every collateral

Trade-offs

  • Commitment fee on unused portion (some)
  • Annual renewal creates uncertainty
  • Over-limit penalties strict
  • Not ideal for one-time large capex
  • Unsecured OD needs premium profile
  • Cash Credit needs monthly stock statement
Comparison

OD vs Cash Credit vs Personal OD

FeatureBusiness ODCash Credit (CC)Personal OD
PurposeGeneral business useWorking capital onlyPersonal use
CollateralVarious (FD/property/nil)Stock + debtorsSalary / FD
Limit BasisSanctioned limitDrawing power (stock)Salary multiple
ReviewAnnualMonthly (stock statement)Annual
Interest Rate9% - 15%9.15% - 14%10% - 18%
Tax DeductionYes (business)Yes (business)No
Max LimitRs 25 CrBased on stockRs 25 Lakh
20 Questions

Business Overdraft - Frequently Asked Questions

What is a Business Overdraft Facility?
A Business Overdraft (OD) is a revolving credit limit sanctioned to your current account by the bank. You can withdraw more than your account balance up to the sanctioned OD limit. Interest is charged only on the amount used and only for the days used - not on the full limit. The OD limit is typically reviewed and renewed annually. It is the most flexible business credit product available.
How is a Business OD different from a regular Term Loan?
A term loan is a lump-sum disbursal with fixed monthly EMI over 1-15 years - interest is charged on the full outstanding. An OD is a revolving limit where you use only what you need, pay interest only on the amount + duration used, and the outstanding fluctuates day-to-day. For unpredictable cash-flow needs, OD is far more cost-efficient than a term loan.
What is the difference between OD and CC (Cash Credit)?
CC (Cash Credit) is a working capital limit against inventory + debtors as collateral - drawing power is calculated monthly from stock statements. OD is a broader term - can be OD Against FD, OD against property (like LAP-OD), or clean OD (unsecured). CC is inventory-driven and reviewed monthly; OD is limit-based and reviewed annually. Both are revolving.
What is the maximum OD limit I can get?
Unsecured business OD: up to Rs 50 lakh (private bank + NBFC). OD Against FD: up to 90% of FD value (no cap). Property-backed OD: up to Rs 25 crore. Cash Credit against inventory: depends on stock + debtor levels. Actual limit depends on your banking behaviour, business turnover, and collateral if applicable.
What is the interest rate on a Business OD?
OD Against FD: FD rate + 1%-2% (cheapest OD available - if your FD earns 7%, your OD costs 8%-9%). Unsecured OD: 10.75%-15%. LAP-OD (property backed): 9%-13%. Cash Credit: 9.15%-14%. Interest is charged on daily-average outstanding, calculated monthly and debited to your OD account.
How is OD interest calculated?
Interest is calculated on daily-average outstanding balance. Say your OD limit is Rs 10 lakh and you drew Rs 3 lakh on day 1, deposited Rs 1 lakh on day 10, drew Rs 5 lakh on day 20 - your interest is calculated based on this fluctuating daily outstanding. This is far more efficient than a term loan where you pay interest on the full amount every month regardless of usage.
What are the different types of Business OD?
(1) OD Against FD - most common, secured by FD lien. (2) Unsecured OD - based purely on banking + business profile. (3) LAP-OD - property-backed with revolving structure. (4) OD Against Insurance - against LIC/insurance surrender value. (5) OD Against Shares - against pledged shares. (6) Cash Credit (CC) - working capital OD against inventory + debtors.
What is OD Against FD?
A loan facility where you use your existing Fixed Deposit as collateral to get an OD limit up to 85%-90% of the FD value. Sanction is instant (same day). Interest = your FD rate + 1%-2%. Your FD continues to earn interest normally. Extremely useful for short-term liquidity - cheaper than breaking the FD and paying premature penalty.
Can I get an Unsecured Business OD?
Yes - private banks (HDFC, ICICI, Axis, Kotak) offer unsecured OD up to Rs 25-50 lakh for premium banking customers with strong turnover + CIBIL 750+ + 2-3 year banking relationship. Rates 10.75%-15%. Bajaj Finance, IDFC First also offer digital unsecured OD. Requires strong current-account activity and clean credit profile.
What is the tenure of a Business OD?
OD is a 12-month renewable limit. At the end of each year, the bank reviews your banking behaviour + turnover + repayment pattern + business profile, and either renews (usually), enhances the limit, reduces the limit, or (rarely) withdraws it. Property-backed and FD-backed ODs have automatic renewal linked to underlying collateral tenure.
Do I pay any minimum interest or standing fee for an OD?
Some banks charge a small quarterly commitment charge (0.25%-0.50% p.a.) on the unused portion of the OD limit - so even if you never touch the limit, you pay a small fee for keeping it available. This is rare for OD Against FD but common for larger unsecured OD limits. Always ask upfront about commitment charges.
What documents are required for a Business OD?
Business KYC + banking documents. Current-account statement (12 months). GST + ITR + audited financials. Constitution documents. For secured OD: collateral documents (FD certificate + lien authorisation for OD Against FD, or property title for LAP-OD). For CC: stock statement + debtor list + previous year audited financials.
How long does OD sanction take?
OD Against FD: same day (2-4 hours). OD Against Insurance: 3-7 days. Unsecured OD: 5-15 days (bank), 3-7 days (NBFC). LAP-OD: 20-45 days (property + legal + valuation). Cash Credit: 15-30 days (needs stock inspection).
Can I convert my existing Term Loan into an OD?
Rarely done - the products serve different purposes. But some lenders allow structural conversion at term-loan foreclosure + OD limit setup as separate transactions. More commonly: businesses maintain both - a term loan for capex + an OD for fluctuating working capital. Talk to your MahadevX RM about the right structure for your case.
What is the difference between OD and Credit Card?
Both are revolving credit. Credit card: shorter cycle (25-45 days interest-free), higher rate (36%+ p.a. beyond grace period), lower limit (usually Rs 5-20 lakh for business cards). OD: continuous limit, moderate rate (9%-15%), higher limit (Rs 25 crore+ possible). OD is designed for cash-flow management; credit card for expense settlement + rewards.
Which banks offer the best Business OD?
For unsecured OD: HDFC, ICICI, Axis, Kotak (premium banking relationships). For OD Against FD: any bank where you have the FD - SBI, HDFC, ICICI, Axis have identical rates. For LAP-OD: HDFC Bank, SBI, Axis, Bajaj Housing. For Cash Credit: PSU banks are the traditional choice - SBI, PNB, Bank of Baroda have the deepest CC product depth.
Can I foreclose or close a Business OD?
Yes - anytime. Since OD is a revolving limit, you simply repay the outstanding and inform the bank you want to close the facility. For OD Against FD - you get your FD lien released back. For LAP-OD - you get the property mortgage discharged. No foreclosure penalty typically (unlike term loans). Some banks may charge a small closure fee Rs 2,000-5,000.
What happens if I exceed my sanctioned OD limit?
Banks may honour or dishonour cheques based on their policy: (1) Honour but charge over-limit penalty (Rs 500-1,000 per instance + 2%-3% higher interest on over-limit amount). (2) Dishonour the cheque + return charges + damage to CIBIL. Repeated over-limits can trigger a limit-review and reduction. Always request a temporary limit enhancement in advance if you anticipate a spike.
Are Business OD interest payments tax-deductible?
Yes - fully deductible as business expense under Section 37(1). OD interest is charged monthly to your account - it appears clearly in your bank statement + interest certificate. Ensure your CA books this correctly as finance cost. Commitment charges + processing fees also deductible. Personal-use component of OD interest is not deductible.
How can MahadevX help me set up a Business OD?
MahadevX helps you choose the right OD type (Against FD / Unsecured / LAP-OD / CC) based on your cash-flow pattern and collateral profile, matches you to the lender offering the best rate + limit + terms, coordinates documentation + sanction, and negotiates on commitment charges + processing fees. Service is free - lenders pay us on disbursal.
Related

Related Loan Types

Working Capital Loan Term Loan Unsecured Business Loan Secured Business Loan CGTMSE Loan MSME Loan
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