Key takeaways
- A revolving credit facility gives you an agreed borrowing limit that you can draw from, repay and use again whenever you need it. They’re often used by growing businesses with ongoing working capital needs.
- A business overdraft is simple and quick to use for day-to-day cashflow gaps, but it’s usually more expensive and higher risk.
- If your business is growing, has more complex cashflow or regularly needs extra headroom, a revolving credit facility can offer greater certainty and flexibility.
- The right option depends on how your business uses cash, whether you're growing or just in need of cashflow support, and how much flexibility you need.
Cashflow rarely follows a neat, predictable pattern. Customers pay late, suppliers need paying on time, and new opportunities can come along when your money is tied up elsewhere.
Gareth Anderson, our Head of Business Management, says:
“People tend to only start scrutinising their cashflow when it’s tight. But by that point, when you’re engaging with a lender, it’s usually too late.”
Established businesses can plan ahead for these situations and arrange finance before they actually need it. Two key products for this are overdrafts and revolving credit facilities. This article explains and compares both, giving you a clearer idea of how both could benefit your business.
What is a revolving credit facility?
A revolving credit facility gives you an agreed borrowing limit that you can draw from, repay and use again throughout the life of the facility. They are often secured against your business’ assets. Unlike a term loan, you don’t receive one lump sum or follow a fixed repayment schedule. Instead, you borrow what you need, when you need it. Once you’ve repaid it, that money becomes available to borrow again.
For established businesses, the biggest benefit is flexibility. Rather than applying for finance every time you need extra working capital, the facility is already there when you need it.
This can be particularly useful if you’re taking on a large contract, buying stock ahead of demand, or managing customers who all pay on different terms.
A revolving credit facility gives you access to finance without you having to use it immediately. To be British about it, it’s like keeping a stash of teabags in the cupboard. You don’t make a brew just because they’re there. But when you need one, you don’t have to rush to the shops first. Having them there gives you options and the ability to act quickly when an unexpected visitor arrives.
We offer revolving credit as part of our growth finance lending. Read more about growth finance.1
What is a business overdraft?
A business overdraft is attached to your business current account and lets you spend beyond your available balance, up to an agreed limit.
There’s no separate drawdown process. If you need it, you simply use it, and you’ll usually only pay interest on the amount you’ve borrowed.
For many businesses, that’s exactly what makes an overdraft so useful. It’s quick, simple and ideal for covering short-term cashflow gaps. As Gareth notes:
“A lot of the worry comes down to timing. Will invoices be paid and cash arrive before bills are due? It’s a constant juggling act.”
Our business overdraft2 is available to established UK limited companies and LLPs with at least 24 months’ trading history and an annual turnover of £500,000 or more. Facilities are available from £25,001 up to £2 million.
One important difference to understand
Most business overdrafts are repayable on demand. That means your lender can reduce or withdraw the facility if their view of your business or wider lending policies change.
Revolving credit facilities have their own terms and structure, all of which are generally more reliable for the borrower.
If you’ve come to rely on an overdraft to keep your business running smoothly, losing it unexpectedly can create real pressure. That’s less likely to happen with a revolving credit facility.
At Allica, our relationship managers regularly speak to businesses whose overdraft has been reduced just when they needed it most. That’s often because lenders become more cautious during periods of uncertainty.
Revolving credit facility vs business overdraft
On the surface, revolving credit facilities and overdrafts look similar. You apply once, agree a borrowing limit and then use the money when you need it.
The difference is in how they’re designed to support your business. Below, we compare them across four key areas.
1. Accessing your credit
An overdraft is designed for low-friction convenience. If your balance drops below zero, you simply start using the agreed limit. There’s no request or formal process required.
A revolving credit facility works slightly differently. You’ll usually make a specific drawdown request when you need it.
That extra structure might sound like more work, but for businesses with larger or ongoing working capital needs, it gives greater visibility and control over borrowing. And to be clear: it’s far, far less work than a loan application. It’s more like an instruction you issue.
2. Cost
Both products charge interest on the money you borrow, but the way they’re priced can differ.
Overdrafts often have higher interest rates because they’re available on demand. Revolving credit facilities may charge a commitment fee on the unused portion of the facility, but typically offer lower borrowing rates.
Rather than looking only at the headline rate, it’s worth thinking about the bigger picture: how much does it cost to have the facility there when you need it? And is that cost worth the confidence you get from on-demand access to extra working capital?
3. Certainty and control
One of the biggest differences between an overdraft and a revolving credit facility is how much certainty they give you.
Most overdrafts are repayable on demand. In practice, that means your lender can reduce your limit or withdraw the facility if their assessment of your business changes.
If you’re relying on that overdraft to manage day-to-day cashflow, that can leave you scrambling to find another source of finance.
A revolving credit facility is typically more structured. The terms are agreed upfront, giving you greater certainty about how the facility works and when it can be reviewed. While lenders still have rights under the agreement, businesses generally have more visibility and time to plan.
As Gareth puts it:
“The key difference is that one is more reactive and transactional, while the other is more deliberate and strategic.”
For businesses with more complex cashflow or ambitious growth plans, that extra certainty can be just as valuable as the funding itself.
4. Reporting requirements
A revolving credit facility will usually come with regular financial reporting and agreed financial covenants. These could include providing management accounts or maintaining certain financial ratios.
For an established businesses with strong fundamentals in financial management, this shouldn’t be too onerous. It’s also something your accountant can support with.
Before taking out any facility, it’s worth understanding what information you’ll need to provide and how often. A good relationship manager will explain what’s expected and help you prepare.
Which is right for your business?
There’s no one-size-fits-all answer. It depends on how your business operates and what you’re trying to achieve.
| Business overdraft | Revolving credit facility | |
|---|---|---|
| Best for | Short-term or occasional cashflow gaps | Larger or ongoing working capital needs |
| Typical uses | Covering late payments, seasonal dips or unexpected costs | Supporting growth, managing larger debtor books or smoothing uneven cashflow |
| Your cashflow | Mostly predictable, with the odd shortfall | More complex, with regular peaks and troughs |
| How it’s used | Dip into when needed for day-to-day cashflow | Draw down when needed, repay and use again |
It’s not so much that one is right or wrong, but they have distinct uses. Revolving credit is a tool designed to help established businesses adapt and navigate their growth plans. Overdrafts are a lighter-touch, lower-value tool for managing fluctuations in cashflow.
What lenders look for
Every lender has their own criteria, but they’ll usually want to build a clear picture of your business and how you’ll use the facility.
For example, with Allica, you may be asked to provide:
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Key financial details, such as turnover and net profit
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Bank account information either by connecting accounts or uploading statements
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Financial documents like your latest two years of filed accounts, aged trade debtors report, and cashflow forecasts
A well-prepared application doesn’t just improve your chances of approval. It also helps your lender recommend the right type of borrowing for your business.
Our view is that lending works best when it’s built on a conversation, not just a credit score. Your relationship manager will take the time to understand your business, talk through your plans, and help structure a facility that’s right for you. They can also explain what the credit team is likely to ask, helping make the application process as straightforward as possible.
Find the right cashflow facility for your business
Whether an overdraft or a revolving credit facility is the better choice comes down to where your business is today and how it manages cash.
If you occasionally need extra breathing room to cover a short-term gap, an overdraft could be all you need.
If your business is growing, regularly in need of extra working capital or would benefit from greater certainty over its borrowing, a revolving credit facility may be a better fit.
The important thing is choosing the right tool for the job. As Gareth says:
“Overdrafts might be convenient, but they’re less strategic. A revolving credit facility feels much more deliberate, with clear limits, drawdowns and repayment expectations.”
1 Revolving credit: All lending is subject to status, our lending criteria, and a satisfactory credit assessment. Terms and conditions apply.
2 Business overdrafts: All lending is subject to status, our lending criteria, and a satisfactory credit assessment. Terms and conditions apply.
Links were live and information was correct at the time of writing the article.
Disclaimer: This is information – not financial advice or recommendation
The content and materials featured in this article are for your information and education only, and are not intended to take into consideration any particular recipients’ financial situation. The product details and interest rates referred to are correct at the time of writing.
The information does not constitute financial advice or recommendation and should not be considered as such. Allica Bank will not accept any liability for any loss, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
