Key takeaways
- A business line of credit is a pre-agreed amount of money you can take out and repay as you go.
- It's sometimes called 'revolving credit', because your use can go up and down - unlike a term loan, where you get the money upfront and pay it off over a set period.
- In the UK, business are most often offered a line of credit in the form of an overdraft.
- Interest is charged only on what you use, though some providers charge fees.
- Arranging one before you need it gives you more flexibility than asking under pressure.
What is a business line of credit?
A business line of credit is a revolving borrowing arrangement. You borrow money up to an agreed limit, repay it and can borrow it again without applying each time.
In UK banking, this is most often set up as a business overdraft.
How does a business line of credit work?
The basics are the same wherever you get one:
- A pre-approved limit. You know how much you can borrow.
- Interest on what you use. You pay interest on the amount you’ve drawn, not the whole limit.
- It revolves. When you repay, that money becomes available again.
A term loan – like our own business loans – works differently. You get a lump sum then repay it over a fixed term, which suits defined, one-off spending. A revolving line suits ongoing, changing working capital needs.
Using revolving credit as a planned working capital tool
Established businesses can use revolving credit to manage the gap between money going out, like payroll and supplier payments, and revenue. Here are three common ways:
- Covering costs ahead of a large client payment. You pay your team and suppliers now, then clear it when the invoice is paid.
- Managing stock buying cycles. You buy stock and repay as sales come in.
- Smoothing predictable seasonal swings. You keep trading steadily through a quiet spell.
Arranging a business line of credit before you need it gives you more financial flexibility. Our guide on how to improve your cashflow has more on planning ahead.
Business line of credit vs business overdraft: what UK businesses need to know
In the UK, a business overdraft is effectively the same product as a business line of credit. The differences are in the type of provider, how large a limit you can get, and how much support comes with it.
| Business line of credit (fintech) | Business overdraft (UK bank) | |
|---|---|---|
| How it works | Revolving access up to an agreed limit | Revolving access up to an agreed limit |
| Interest charged | On the amount drawn, not the full limit | On the amount drawn, not the full limit |
| Repayment | Flexible, no fixed schedule | Typically clears as revenue enters the account |
| Limit range | Varies, often smaller limits | Up to £2m with some established banks |
| Security | Often unsecured for smaller amounts | Personal guarantee common, charge over assets for larger limits |
| Primary account required | Not usually | Required by some providers |
| Relationship support | Typically digital and automated | Dedicated relationship manager with some banks |
How to apply for a business line of credit in the UK
Lenders usually look at:
- Your trading history
- Your profitability and turnover
- Your directors’ credit history
- What you plan to use the money for
Some providers, including Allica, need your business’s main current account to be with them before an overdraft can be used. Apply before you need the money, as opening an account and completing checks can take longer than you expect.
Find out more about business overdraft eligibility, or read about how to switch your business bank account.
Frequently asked questions about business line of credit
Is a business line of credit the same as a business overdraft in the UK?
They’re very similar. Both give you revolving access to money up to an agreed limit, with interest charged only on what you use.
“Line of credit” is the term fintech lenders and US articles use most. “Business overdraft” is the standard UK banking term.
What is the difference between a business line of credit and a business loan?
A business loan gives you a lump sum upfront, which you repay over a fixed term with set payments. It suits defined, larger spending, like equipment, commercial property, or a specific project.
Does a business line of credit cost anything when it is not being used?
Most revolving credit charges interest only on the amount you’ve drawn, so an unused line has no interest cost. Some providers charge a commitment or arrangement fee, so check the fees.
To estimate what an Allica overdraft would cost, try our overdraft cost calculator.
Is a business line of credit or overdraft right for you?
If you want flexible borrowing for working capital, a business overdraft could be the right fit. It gives you the same revolving access as a line of credit, from a bank that knows your business.
Explore our business overdraft, or talk to a relationship manager about your working capital needs.
All lending is subject to status, our lending criteria, and a satisfactory credit assessment. Terms and conditions apply. Overdrafts are repayable on demand.
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 information and education only, and are not intended to take into consideration any particular recipient’s financial situation. The product details 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.
