How a business revolving credit facility lets you draw, repay and redraw, what it really costs including unused-limit fees, and how it compares with a loan.
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In short
Typical uses are paying suppliers before customers pay, building stock for a busy season or covering payroll in a quiet month. The real cost is the interest on what you draw plus any arrangement, renewal or unused-limit fees, so compare facilities on total cost, not the headline rate.
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About revolving credit facility
A revolving credit facility (RCF) is a business credit line with an agreed limit that you can draw from, repay and draw from again without signing a new agreement each time. Interest is charged only on the amount you have drawn, not on the full limit. It is designed for businesses whose cash needs come and go, such as seasonal traders, contractors and firms waiting on customer payments. In practice it works much like a business overdraft, but it is usually arranged with a specialist lender rather than attached to your bank account. Smart Funding Solutions compares revolving credit from lenders on its panel and approaches the ones most likely to consider your business.
Funding needs
An RCF suits costs that come and go rather than one-off purchases:
For a single large purchase with a clear payback period, such as machinery, a term loan or asset finance is usually a better fit.
Where the pressure comes mainly from a single tax payment, a dedicated HMRC tax loan repaid before the next bill may be simpler than an ongoing facility.
Not ready for the full application? Leave a few details and a broker will call you to talk it through. It is free, with no obligation.
A transaction we arranged
£600,000
£600K arranged, then another £400K as the business grew.
A fast-scaling national training provider needed £600,000. Further funding followed as it grew, including a £400,000 facility.
Read the transactionInterest is typically calculated daily on the outstanding balance, so the cost rises and falls with how much you use. Facilities run for an agreed term and can often be renewed if the account has been well managed.
Pricing varies widely between lenders and depends on your credit profile, trading history, the size of the limit and whether security is offered. Look at more than the headline rate:
Our guide to business loan interest rates explains how lenders price risk.
Some facilities are unsecured; others are secured against business assets or property, which can support a larger limit or lower pricing. On unsecured facilities, directors are commonly asked for a personal guarantee, which means they could be personally liable if the business cannot repay.
Our guide to property-backed revolving credit facilities covers facilities secured on commercial or investment property, which run to much larger limits.
An unsecured revolving credit facility from a specialist lender is typically set up within a few days to two weeks of a complete application; a secured or larger facility usually takes several weeks. Speed depends on how current your figures are, whether the lender can connect to your bank data or needs statements, and how many directors must sign guarantees. Where the facility is secured, a debenture or property charge, any valuation and the legal work add time. After the first set-up, individual drawdowns are much quicker, because the limit is already approved and each request is simply paid into your account under the existing agreement.
the limit is usually linked to the size and consistency of your revenue.
cash flow patterns and how existing commitments are handled.
filed accounts and, if they are out of date, current management figures.
for the business and its directors. Recent defaults or CCJs can limit options, though evidence that past debts have been settled helps.
the new facility must be affordable alongside current commitments.
| Advantages | Disadvantages |
|---|---|
| Interest only on what you use | Rates can be higher than a secured term loan |
| Draw repeatedly without reapplying | Arrangement and non-utilisation fees add to the cost |
| Suits uneven or seasonal cash flow | Easy access can encourage reliance on credit |
| A well-run facility may lead to a higher limit at renewal | The lender can reduce or withdraw the facility at renewal |
How the main business finance structures work. Lenders set their own terms, so treat this as a guide to the questions to ask.
| Option | How you repay | Security | Often used for |
|---|---|---|---|
| Unsecured business loan | Fixed instalments, usually monthly | No charge over assets; a personal guarantee is usually required | Growth, stock, tax bills and cash flow |
| Secured business loan | Fixed instalments, often over a longer term | A charge over property or other assets | Larger sums, property and refinancing |
| Revolving credit facilityThis page | Interest on what you draw; repay and redraw | Varies by lender and case | Recurring or uneven cash flow gaps |
| Merchant cash advance | A share of future card takings | No charge over assets | Card-taking businesses with uneven months |
| Asset finance | Regular payments over the life of the asset | The asset being financed | Equipment, vehicles and machinery |
| Invoice finance | Settled as customers pay their invoices | Your unpaid invoices | Businesses waiting on customer payment |
General information only. Every lender has its own criteria, and all finance is subject to status.
The main alternatives to a revolving credit facility are a term loan, a bank overdraft and invoice finance, with working capital loans and a merchant cash advance also worth comparing for card-taking businesses. The table sets the first two against an RCF.
| Revolving credit facility | Term loan | Bank overdraft | |
|---|---|---|---|
| How funds are received | Drawn as needed up to a limit | One lump sum | Available on your current account |
| Interest | On drawn balance only | On the full loan | On overdrawn balance only |
| Reusable | Yes | No | Yes |
| Best for | Recurring, variable costs | Planned one-off investment | Small, short dips in cash |
If your gap is caused mainly by slow-paying customers, invoice finance releases money tied up in unpaid invoices and can grow with your sales.
A revolving credit facility means a pre-agreed borrowing limit that refills as you repay it, so the same credit can be used again and again during the term. The word revolving is the key: a standard loan is paid out once and the balance only goes down, while revolving credit goes up and down with your needs.
Non-revolving credit, such as a term loan or asset finance, is drawn once and repaid on a fixed schedule; once it is repaid, you must apply again. Revolving credit stays available until the facility ends or is reviewed. Because you could draw the full limit at any time, lenders review revolving facilities regularly and set limits with that in mind.
| Revolving credit facility | Business credit card | Bank overdraft | |
|---|---|---|---|
| How you use it | Drawn into your bank account | Card purchases | Payments from your current account |
| Typical use | Stock, payroll and supplier bills | Smaller day-to-day expenses | Short dips in the account |
| Usual provider | Banks and specialist lenders | Card issuers | Your own bank |
| Cost basis | Interest on the drawn balance plus any facility fees | Interest on unpaid balances plus any card fees | Interest on the overdrawn balance plus any arrangement fee |
Our comparison of a business credit card vs a business loan looks at card borrowing in more detail.
In practice it is short-term borrowing: each drawdown is meant to be repaid within months, even when the facility itself runs for longer and is renewed. How the balance appears in your accounts depends on when it falls due, so confirm the treatment with your accountant. Using revolving credit for long-term investment is a common reason a facility becomes hard to clear.
Large companies use RCFs too, often provided by several banks together, with pricing set as a margin over a benchmark rate and a commitment fee on the unused limit. The facilities SMEs use work on the same principle with simpler documents. You may also see the phrase revolving credit plan; check whether a product with that name is personal or business credit, because personal credit is assessed and regulated differently.
A revolving line of credit for a business with bad credit is harder to arrange than a one-off loan, because the lender is committing to future lending. Some lenders will consider older, settled defaults where recent trading is steady, often starting with a lower limit that can be reviewed at renewal. Our guide to bad credit business loans explains how lenders weigh adverse history.
We review your trading pattern to check revolving credit is the right structure rather than a loan or invoice finance, explain what limit and costs are realistic, and approach suitable lenders on your behalf. We then go through any offers with you, including fees on unused limits and renewal terms. Decisions can come within a few working days once a lender has everything it needs, and approval is always at the lender's discretion. Once approved, the lender issues a facility agreement and any guarantee for signature; after that, you request drawdowns through its online account or by instruction, and the lender reviews the facility again before renewal. Compare other options on our cash flow finance page.
The limit depends on the lender's assessment of your business, mainly your turnover, cash flow, credit history and existing borrowing. Offering security can support a higher limit. Many lenders link the limit to your monthly revenue, and a well-managed facility can sometimes be increased at renewal. A broker can tell you what is realistic once they have seen your figures.
Yes, some lenders offer revolving credit to sole traders, although more facilities are aimed at limited companies. Lenders will look at business bank statements, personal credit and tax returns. Finance of £25,000 or less to sole traders and small partnerships can be regulated consumer credit, which some revolving credit lenders do not provide. Our page on sole trader loans covers the wider choices.
Yes, a lender can reduce or withdraw a revolving credit facility in the circumstances set out in the agreement, such as missed payments, a breach of conditions or a significant change in the business. Facilities also run for a fixed term and are reviewed before renewal. Read the terms on reviews, notice and repayment on demand, and do not rely on a single facility as your only cash buffer.
A revolving credit facility usually appears on the business credit file, and the directors' files may be checked when you apply. Some lenders may use a soft search at the early stage, and a full search usually happens on application. Once the facility is in place, keeping within the limit and paying on time can support your credit profile, while running constantly at the limit may concern future lenders.
Yes, many businesses keep a bank overdraft and add a revolving credit facility for larger or longer needs. The new lender will take the overdraft into account when assessing affordability, and may ask how both facilities will be used. Holding both gives more headroom but adds to total borrowing. Our guide to an overdraft versus a business loan explains how overdrafts compare.
An RCF loan is another name for a revolving credit facility: a business credit line with an agreed limit that you draw from, repay and draw from again during the term, paying interest only on what you have drawn. Unlike a standard term loan, there is no single lump sum repaid on a fixed schedule. It suits recurring, variable costs such as stock and payroll rather than one large purchase.
It is harder, because most revolving credit lenders set the limit from trading history and bank statements, so they want to see some months of turnover first. A newly formed business may be offered a smaller limit, asked for a personal guarantee, or steered towards a business credit card or a start-up loan until it has a track record. Once the account has been well run, the limit can sometimes be increased at renewal.
At the end of the term the lender reviews the facility and either renews it, renews it on a different limit or terms, or asks for the balance to be repaid. A well-run account, up-to-date figures and steady trading make renewal more likely. Ask how much notice the lender gives and what repayment schedule applies if it does not renew, so a non-renewal does not leave a sudden cash gap.
Rather than a fixed lump sum on day one, the business wanted a facility it could use to pay suppliers as required.
The dealership wanted to buy vehicle stock rather than leave cash waiting for the next sales cycle.
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