Overdraft: Meaning in a Merchant Cash Advance
An overdraft happens when a bank pays a transaction that takes an account below zero. The bank covers the shortfall for a short time and usually charges a fee for each item it pays that way.
What does overdraft mean?
An overdraft is the other side of an NSF. Instead of bouncing the payment, the bank lets it through and your balance goes negative. Some accounts have overdraft protection linked to savings or a line of credit, which moves money over automatically, often for a smaller fee. Without it, the account sits negative until deposits bring it back above zero.
Why does overdraft matter to your business?
Funders count overdrafts along with NSFs, and they also count the number of days the balance ended below zero. An account that dips negative once and recovers the next morning reads very differently from one that stays negative for a week. Many funders cap the number of negative days in a month, and heavy overdraft use can cut the offer or stop it.
How do you reduce overdrafts?
- Link overdraft protection to a savings account so transfers happen before a fee.
- Set balance alerts in your bank's app at a level that covers your biggest debits.
- Schedule payroll and large vendor payments for days when deposits usually land.
How do you spot them on your statements?
Ahead of a funding call, count your negative days for each of the last few months. If one month stands out, be ready to explain it in a sentence.
Where will you see it?
On statements as overdraft fees, OD fees or items paid into overdraft, and in the daily balance column as a negative figure. In underwriting summaries that list negative days per month.
Which terms are related to overdraft?
The full list is in the glossary. Owners ask about this in What does an MCA payment look like on my bank statement?.
A term on your offer you don't recognize?
Send us the line and we'll tell you what it means. Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.