Revolving credit facilities for businesses

You ask the lender for funds up to your available limit, the money is paid into your business bank account, and you repay it under the facility's rules. Whatever you repay becomes available to draw again, so the available balance is always the limit minus what is currently drawn.

Lenders handle drawdowns in different ways, so it helps to know which model an offer uses:

• Revolving balance: you draw and repay freely, often with a minimum monthly payment, and interest is worked out on the balance outstanding each day.
• Separate drawdowns: each drawdown becomes its own small loan with a fixed repayment period, for example a few months. You can have several running at once, as long as the total stays within the limit.
• Interest period drawdowns: more common on larger, secured facilities. You submit a drawdown request, choose an interest period, and either repay or roll the amount over at the end of it.

Interest is charged only on money you have drawn, usually calculated daily on the outstanding balance. How the rate is set varies, and it affects whether repaying early saves you money.

• Variable rate: a margin over a reference rate such as the Bank of England base rate, so your cost moves when the reference rate moves.
• Fixed monthly rate: a set percentage per month on the drawn balance.
• Fixed charge per drawdown: some credit lines set the total charge for each drawdown at the outset. Repaying early may not reduce it, so check before you draw.

Some lenders also charge a fee on the unused part of the limit, often called a commitment or non-utilisation fee. On a facility you rarely use, that fee can be a meaningful part of the total cost.

Beyond secured and unsecured facilities, the terms below describe how firmly the money is promised to you and how long the facility runs.

Committed and uncommitted facilities

With a committed facility, the lender agrees to provide funds up to the limit for the facility term, provided you keep to the agreement. An uncommitted facility gives the lender more discretion to decline a drawdown. Committed facilities usually carry fees for that certainty.

Fixed-term and evergreen facilities

A fixed-term facility ends on a set date, when the balance must be repaid or refinanced. An evergreen facility continues until either party gives notice, often with an annual review.

Facilities with clean-down periods

Some lenders require the drawn balance to be reduced to zero, or below a set level, for a period each year. This shows the facility is funding short-term needs rather than permanent borrowing.

The total cost is the interest on what you draw plus any fixed fees, so the headline rate never tells the whole story. Compare offers on the total cost at the level of use you actually expect.

• Interest on drawn balances, as explained above.
• Arrangement fee, often a percentage of the limit, charged when the facility is set up.
• Renewal or review fee when the facility is renewed.
• Non-utilisation or commitment fee on unused limits, where it applies.
• Drawdown fees on some credit lines, charged each time you draw.
• Late payment and default charges if repayments are missed.
• Legal and security costs on larger, secured facilities.

Pricing depends on your turnover, profitability, credit history, the security offered and the size of the limit. A facility drawn heavily for most of the year can cost more than a term loan, while one used occasionally can cost much less.

Illustrative worked example

Illustrative example only: actual costs depend on the lender and your circumstances. A distribution company has a £100,000 facility with a 2% arrangement fee and an illustrative interest charge of 1.5% per month on drawn balances, with no fee on unused limits.

• Arrangement fee: 2% of £100,000 equals £2,000.
• It draws £40,000 for two months to cover a supplier bill: £40,000 at 1.5% for two months equals £1,200.
• Later, it draws £60,000 for one month to cover a VAT payment: £60,000 at 1.5% equals £900.
• Total cost: £2,000 plus £1,200 plus £900 equals £4,100.

Borrowing the full £100,000 for three months at the same rate would cost £4,500 in interest alone, before any fees. That gap is why paying only for what you draw matters.

Lenders usually size an unsecured revolving credit facility by reference to your turnover and how much you can comfortably repay. Secured facilities can be larger, because the lender also relies on the company's assets.

• Turnover and bank statements: many lenders look at average monthly income, and some set the limit as a proportion of it.
• Affordability: your existing debt repayments and profitability show whether further borrowing is manageable.
• Credit profile: the company's and directors' credit histories affect both the limit and the rate.
• Security: a debenture or personal guarantees may support a larger limit.

Some lenders start with a smaller limit and increase it once you have used and repaid the facility well. Our guide to how much a limited company can borrow explains the wider approach, and the borrowing capacity calculator gives a rough starting point.

A revolving credit facility sits between an overdraft and a term loan: flexible like an overdraft, but usually more structured and less easily withdrawn. The right choice depends on whether your need is ongoing and variable or a single, known amount.

Revolving credit facility vs overdraft

• An overdraft is linked to your business current account. A revolving credit facility is a separate account, often with a different lender, that pays funds into your bank account.
• Overdrafts are usually repayable on demand, so the bank can reduce or withdraw them. A committed revolving facility is usually only withdrawn if you breach its terms.
• Both usually charge interest only on what you use, though fee structures differ.

Revolving credit facility vs term loan

• A term loan pays a fixed sum once and you pay interest on all of it from day one. A revolving facility charges interest only on what you draw.
• A term loan suits a single, known cost such as an investment or a project. A revolving facility suits repeated, variable needs.
• Term loans usually run for longer, often several years, with predictable repayments. Revolving facilities are typically reviewed or renewed every year or two.

Other options to consider

• Unsecured business loans for a one-off amount repaid over a fixed term.
• Invoice finance if your cash is tied up in unpaid invoices, as the limit grows with your sales.
• A working capital loan for a defined short-term gap, such as a seasonal dip.

Because a revolving facility is easy to use, check these points before you sign:

• Personal guarantees: most unsecured facilities need one, which makes directors personally liable if the company cannot repay. See what a personal guarantee means.
• Security: whether the lender takes a debenture and how it ranks against your other lenders.
• Review and reduction: whether the lender can reduce the limit or stop further drawdowns, and on what notice.
• Repayment on termination: how quickly the balance must be repaid if the facility ends or is not renewed.
• Early repayment: whether repaying a drawdown early reduces the interest or a fixed charge still applies.
• Covenants: larger facilities may include financial tests, such as minimum profit levels, that can trigger a default if missed.

Possibly, but choices will be more limited. Revolving credit is often assessed on recent bank statements, so steady income can carry weight even where other parts of the profile are weaker.

Some lenders consider companies with past credit issues, usually with a lower limit or higher pricing. Each lender sets its own minimum trading period and turnover, so a younger company may find a smaller panel of options. Low profits make affordability harder to show, although strong, consistent cash flow can help. Decisions are always the lender's and approval is never certain.

A revolving credit facility for a limited company, LLP or partnership of four or more partners is generally unregulated business lending. Consumer Credit Act protections generally do not apply.

Your rights depend on the agreement you sign, so read it in full, including the review and termination clauses, and consider independent legal or accounting advice. Our guide to regulated vs unregulated business finance explains the difference.

We are a commercial finance broker, not a lender. Every client has a dedicated relationship manager, a real person you can reach by phone, email and chat, from first enquiry until the lender pays out.

1. Check your eligibility in about 60 seconds without affecting your credit score.
2. Your relationship manager learns how your cash flow moves through the year and what limit would be useful.
3. We approach suitable lenders on our panel. They run their own credit checks only once you decide to apply.
4. We help you compare offers on interest, fees, security and review terms, and support you through to your first drawdown.

We do not charge your company a fee. We are paid a commission by the lender when your finance completes. You can ask how much it is, and it can differ between lenders.

How quickly can I draw funds once the facility is set up?

Many lenders pay drawdowns by the next working day, and some faster. Larger secured facilities may need a few days' notice for each drawdown.

Is there a minimum drawdown amount?

Some lenders set one, so check that it matches the size of payments you expect to make.

Can I repay a drawdown early?

Usually, yes. Whether that saves interest depends on how the facility charges, so check for fixed charges per drawdown.

Can I have a revolving credit facility and a bank overdraft?

Often, yes, although each lender will take the other borrowing into account when assessing affordability.

Can the limit be increased later?

Many lenders review limits as your turnover grows or after a period of good use. An increase is a new credit decision.

What happens if I miss a repayment?

The lender may charge late fees, stop further drawdowns and, if the problem continues, demand repayment and rely on any guarantees or security.

Does using the facility affect my credit file?

Lenders may report the facility and how it is used to business credit reference agencies. Our guide on improving a business credit score explains what lenders look at.

Can a revolving credit facility pay HMRC bills?

Yes, it can be used for VAT, PAYE or corporation tax. HMRC late-payment interest is the Bank of England base rate plus 4%, so compare that with the facility's cost, and ask HMRC about a Time to Pay arrangement if needed.