What is a revolving credit facility?

A revolving credit facility is a flexible line of credit your business can tap into whenever you need it. You get approved for a maximum amount (say £50,000) and you can draw, repay, and redraw that money as many times as you want. You only pay interest on what you've actually borrowed, not the full approved limit.

It's different from a traditional loan where you get a lump sum upfront and repay it over a fixed period. With revolving credit, the money is there when you need it, and you have flexibility in how and when you use it.

Revolving vs non-revolving credit

Non-revolving credit is straightforward: you borrow a fixed amount and repay it over an agreed term. A car loan is non-revolving. You borrow £20,000, you repay it over 5 years, it's done.

Revolving credit works differently. Once you've repaid what you borrowed, that part of your credit limit becomes available again. It's like having a buffer you can repeatedly draw from. A credit card is revolving credit. You spend £1,000, pay it back, and you can spend another £1,000. The limit renews.

How does a revolving credit facility work?

Credit limits and drawdowns

When you're approved for a revolving facility, the lender sets a maximum credit limit. You don't have to use all of it immediately. You draw only what you need, when you need it.

Say you've got a £100,000 facility. You draw £30,000 in January for stock. You're charged interest only on that £30,000. In February, you draw another £20,000 for equipment. Now you owe £50,000 and pay interest on £50,000.

In March, you repay £40,000. Your facility balance drops to £10,000. That £40,000 you just repaid becomes available again. If you need it in April, you can draw it. That's the "revolving" bit.

A worked example

You run a wholesale business and have a £60,000 revolving facility at 8% annual interest.

January: Stock shortage. You draw £30,000. Interest accrues on £30,000.

February: Rush order from a big customer. You draw another £15,000 to fulfil it. Total outstanding: £45,000.

March: Customer pays you. You repay £35,000 of your facility. Outstanding drops to £10,000.

April: You need stock again. You draw £25,000. Outstanding: £35,000.

May: Quiet month. You don't draw anything, but you can if needed.

Throughout, you only pay interest on what you've actually borrowed. When you repay, that amount becomes available to redraw. It's designed for businesses with fluctuating cash needs.

Revolving credit facility vs a term loan

A term loan is straightforward: you borrow a lump sum upfront and repay it monthly over a fixed period (typically 1-6 years). Once you've repaid it, it's gone. If you need more money later, you apply for a new loan.

A revolving facility is flexible. You draw as needed, repay when you can, and redraw. If your business needs are unpredictable – you don't know how much you'll need or when – a revolving facility is more practical.

That said, term loans can be cheaper if you know you need a specific amount. A business loan may suit better than a revolving facility if you need a fixed amount for a specific purpose.

Revolving credit facility vs a business overdraft

An overdraft lets you spend once your account hits zero (up to an agreed limit) and pay interest on the overspend. On paper, it sounds similar to a revolving facility.

The key differences:

• Overdrafts can be cheaper (lower interest rates) but less stable. Banks can withdraw them with notice. A revolving facility is more formal.
• Overdrafts are meant for short-term gaps (a few weeks). Revolving facilities are for ongoing, recurring needs.
• Overdrafts are reactive (you go overdrawn when you need money). Revolving facilities are proactive (you draw deliberately when you need money).

Funding Circle doesn't offer overdrafts, but FlexiPay works as a flexible line of credit you draw from as you need it. It's structured differently from an overdraft but achieves a similar goal: flexible access to cash when your business needs it.

How much can you borrow?

Lenders assess several things: your business size (turnover), how long you've been trading, your credit history, and your profitability. Typically, you might borrow between 10-50% of your annual turnover, depending on the lender and your circumstances.

A startup might qualify for £10,000-£25,000. An established business with £500,000 turnover might access £50,000-£100,000 or more. There's no standard formula, which is why it's worth shopping around and comparing the overall costs. 

Costs and fees to consider

Interest, arrangement fees and personal guarantees

You pay interest only on what you've drawn, not the full approved limit. Interest rates vary – typically 5-15% depending on your credit profile, how long you've been trading, and the lender. Note that rates can fall outside of the range and check with the lender to ensure the rates are a match for your business. 

Some facilities charge an arrangement fee (typically 1-3% of the approved limit) for setting it up. It is always worth checking with the lender for clarity on arrangement fees.

Many lenders require a personal guarantee, meaning you're personally liable if the business can't repay. Some facilities are unsecured (no personal guarantee required), but these typically have higher interest rates.

Secured vs unsecured facilities

An unsecured facility has no collateral requirement. You just need to pass credit checks. But interest rates are higher to compensate the lender for the risk.

A secured facility is backed by collateral – usually property or business assets. Interest rates are lower because the lender has security. If you default, they can take the asset.

For most SMEs, unsecured is more practical. Secured facilities are typically only worth considering if you've got significant assets and the interest saving justifies the risk.

Pros and cons of a revolving credit facility

Pros:

• Flexibility: draw only what you need, when you need it
• Reusable: repay and redraw as often as you want
• Can be cheaper than credit cards for larger amounts
• Interest only on what you've borrowed
• Good for seasonal businesses or unpredictable cash needs

Cons:

• Can be more expensive than a term loan (you're paying for flexibility)
• Often requires a personal guarantee
• Can tempt overuse if you're not disciplined
• May have arrangement fees
• Available credit doesn't solve a profitability problem

When to use a revolving credit facility

Use one if your business has fluctuating cash needs: seasonal peaks, variable stock requirements, occasional large purchases. A cleaning business with seasonal demand, a wholesaler with variable orders, a retailer with unpredictable stock needs – these benefit from revolving credit.

Don't use one if you need a fixed amount for a specific purpose (buy a vehicle, fit out premises). A term loan is better and cheaper for that.

How to apply and what lenders assess

Lenders will want to see your last 2-3 years of accounts, recent bank statements, a business plan, and your personal credit report. They'll assess your business's trading history, profitability, and cash flow.

If you're self-employed or a sole trader, they'll look at your personal tax returns and personal credit score.

The application process typically takes 2-4 weeks from application to approval (sometimes faster).

Each lender's requirements may vary therefore it is important to check the eligibility requirements with individual lenders. 

FAQs

Is a revolving credit facility the same as an overdraft?

Not quite. Both give flexible access to money, but overdrafts are short-term and reactive (you go over your balance), while a revolving facility is a formal credit line you draw from proactively. Overdrafts can be cheaper but less stable. Revolving facilities can be more expensive but more reliable.

Do you need security or a personal guarantee for a revolving credit facility?

Not always but can be needed. Many unsecured facilities don't require either – just good credit. But unsecured typically means higher interest rates. Secured facilities offer lower rates but require collateral (usually property).

How is interest charged on a revolving credit facility?

You pay interest only on what you've actually borrowed, calculated daily or monthly depending on your lender. Interest is typically charged monthly and added to your outstanding balance.

Can sole traders get a revolving credit facility?

Yes, but lenders assess you personally (personal credit score, personal tax returns, personal guarantees). The process is the same as for limited companies, just with personal rather than business accounts.

Related reading

• Credit facility or credit card: which is right for large purchases?
• How FlexiPay can help you take control of your cash flow
• Financing growth: business credit cards vs lines of credit

Disclaimer

18/08/2026 – While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.