What is a business credit line?
A business credit line (also called a revolving credit facility) gives your company access to a pre-approved pot of money that you can draw from, repay and draw from again, up to your agreed limit. You only pay interest on the amount you have drawn, not the full facility limit. It is one of the most flexible forms of business finance available in the UK.
Unlike a term loan, where you receive a lump sum and repay it over a fixed schedule, a credit line stays open as long as you maintain it. Draw £20,000 for a supplier payment, repay it in six weeks, and that £20,000 is available again. There is no need to reapply each time you need funds. Fundably’s flagship revolving credit providers are iwoca for SME credit lines and Funding Circle FlexiPay for card-linked revolving facilities, alongside Capital on Tap and other panel lenders.
How a business credit line works
- You apply for a credit facility up to a stated limit (typically £1,000 to £500,000 for SMEs)
- Once approved, the facility is open and available to draw from at any time
- You draw funds as needed, in full or in smaller amounts
- Interest accrues only on what you have drawn
- You repay what you have drawn (in full or in instalments, depending on the product)
- As you repay, your available balance restores and you can draw again
Example:
- Facility limit: £50,000
- Amount drawn: £15,000 for stock purchase
- Interest rate: 1.5% per month on drawn balance
- Monthly interest cost: £225
- After repaying £15,000, available balance returns to £50,000
Credit lines versus overdrafts versus term loans
Credit lines are frequently confused with overdrafts and term loans. They are distinct products.
| Feature | Credit Line | Business Overdraft | Term Loan |
|---|---|---|---|
| Access to funds | Draw any time up to limit | Spend below zero balance | Lump sum up front |
| Repayment | Flexible (revolving) | Repay to restore balance | Fixed monthly schedule |
| Interest charged on | Amount drawn | Overdrawn balance | Full loan balance |
| Renewed | Automatically (if in good standing) | Bank discretion annually | Not applicable |
| Speed of access | Immediate once approved | Immediate | Application required each time |
| Typical limit (SME) | £1k to £500k | £1k to £50k | £1k to £10m+ |
Overdrafts are a bank product tied to your current account. They tend to have lower limits and can be withdrawn at short notice. They suit very short-term cash flow gaps.
Credit lines from non-bank lenders are independent of your bank account, typically offer higher limits and are available through alternative finance providers that are easier to access than high-street banks.
Term loans provide more capital for larger one-off investments but require a new application each time you need funds and carry a fixed repayment schedule regardless of your cash flow.
Costs
Business credit lines typically have two cost components:
Interest rate: charged on the balance drawn, expressed as a monthly or annual rate. Typical ranges for UK SMEs are 0.5% to 3% per month (equivalent APR of roughly 6% to 43%). Rates vary based on your business’s credit profile, turnover and trading history.
Facility fee (not always present): some providers charge a monthly or annual fee to keep the credit line open, regardless of whether you draw from it. This is often waived for smaller facilities or the first year. Always factor this into your total cost calculation.
Arrangement fee: some lenders charge a one-off setup fee when the facility is established. Check the key information document before accepting.
There are no factor rates, no origination costs structured like an MCA and no fixed-term interest commitment as with a term loan. The total cost depends entirely on how much you draw and for how long.
Who qualifies for a business credit line?
Eligibility criteria vary by lender but typical requirements include:
- UK limited company with at least 3 months of trading history (most lenders prefer 6 months or more)
- Monthly revenue (typically £5,000 or more)
- A business bank account
- No active insolvency proceedings
Personal credit scores matter but are not the primary qualifying factor for most alternative lenders. Cash flow consistency and trading history carry more weight. Credit lines are accessible to businesses that have been declined by high-street banks, particularly through alternative lenders on Fundably’s panel such as iwoca and Funding Circle FlexiPay.
When a credit line is the right tool
A revolving credit line suits businesses that need:
- Ongoing working capital flexibility to manage the gap between paying suppliers and receiving customer payments
- Seasonal cash flow management, drawing funds during a quiet period and repaying when revenue recovers
- Fast access to funds for opportunities: a stock purchase, a trade show or a bridge to a large payment arriving in 30 days
- A safety net without committing to a fixed repayment schedule before you know exactly how much you need
A credit line is not ideal for large one-off capital expenditure (a term loan usually offers better rates for this) or for businesses that need multi-year financing at fixed rates.
When to choose a different product
| Situation | Better product |
|---|---|
| Buying equipment or a vehicle | Asset finance |
| Large one-off investment with a clear business case | Business loan |
| Cash is tied up in unpaid invoices | Invoice finance |
| Revenue comes primarily from card transactions | Merchant cash advance |
| Multi-year expansion with predictable cash flow | Term loan via Fundably |
How to compare credit line providers
Key comparison points when reviewing credit line offers:
- Credit limit offered: does it cover your realistic peak draw requirement?
- Interest rate on drawn balance: the most important cost driver
- Minimum repayment terms: some facilities require minimum monthly repayments regardless of how much you have drawn
- Facility fee: monthly or annual cost to keep the line open when unused
- Draw fees: a small number of providers charge a fee each time you draw funds
- Notice period to close or reduce the facility: relevant if your borrowing needs change
Apply through Fundably to compare credit line offers alongside term loans and other products. As a commercial finance broker and NACFB member, Fundably uses a single soft-credit application across 50+ lenders, with iwoca and Funding Circle FlexiPay as our flagship revolving credit providers. The soft search does not affect your credit score and is not visible to other lenders. Results in hours.
See which credit lines you qualify for on Fundably →