Revolving Credit Facility vs Business Overdraft: Which Is Better?

When your business needs flexible, on-demand funding to smooth out cash flow, two options come up again and again: a revolving credit facility (RCF) and a traditional business overdraft. They work in similar ways but differ in important respects. Here's how to choose.

What is a revolving credit facility?

A revolving credit facility is a pre-agreed limit you can draw down, repay and redraw as often as you like during the term. You only pay interest on the balance you're actually using, not the full limit. It behaves like a flexible line of credit that refreshes as you repay - hence 'revolving'.

What is a business overdraft?

An overdraft is a facility attached to your business current account that lets you spend beyond your balance up to an agreed limit. It's convenient and familiar, but overdrafts have become harder to secure from high-street banks, and limits can be reduced or withdrawn at short notice.

Key differences

• Availability: overdrafts are increasingly restricted by banks; RCFs are widely available from specialist lenders.
• Certainty: an RCF is a committed facility for a set term; overdrafts are often repayable on demand.
• Size: RCFs can typically be arranged for larger amounts.
• Cost: both charge interest on what you use, plus arrangement or non-utilisation fees - compare the total cost, not just the headline rate.

Which should you choose?

An overdraft can be fine for small, everyday fluctuations if your bank will provide one. A revolving credit facility tends to suit businesses that want a larger, committed and dependable buffer - for managing seasonality, funding stock cycles, or bridging timing gaps between income and outgoings - without the risk of the facility being pulled unexpectedly.

How we help

RCF terms, fees and covenants vary widely between lenders. We help you secure a facility sized correctly for your needs, on terms that give you genuine flexibility. At Sadi's Commercial Finance we arrange revolving credit facilities for UK businesses across a broad lender panel.

Want flexible working capital? See our revolving credit facility service or speak to a specialist.