Both products let you draw, repay and borrow again against an agreed limit. The decision comes down to the contract behind that limit and how often you expect to use it: an overdraft is convenient but commonly repayable on demand, while a committed facility offers an agreed availability period subject to its written conditions.
A reusable credit line is not necessarily a committed revolving credit facility (RCF). We classify a product as a formally documented facility with an agreed availability period only where its terms support that description; specialist lines with different redraw, review or cancellation conditions sit in a separate category.
Revolving Credit vs Overdraft at a Glance
RCF vs overdraft in 30 seconds
A business overdraft is a borrowing limit attached to your business current account. It activates automatically when the balance goes below zero, you pay interest on the amount you are overdrawn, and the bank can generally demand repayment or reduce the limit under the terms of your agreement.
A committed revolving credit facility is a separate credit agreement with its own limit and availability period. Within that period you can draw, repay and redraw, paying interest on the balance used. You are paying for the lender’s commitment to keep the money available, subject to the covenants, conditions and default terms in the agreement.
The practical difference: an overdraft gives you convenience and no standing cost for the credit line itself at smaller limits; a committed facility gives you a period of contractual visibility, usually in exchange for arrangement and standing fees. Neither is reliably cheaper. The number of days a year you draw decides it.
| Business overdraft | Committed revolving credit facility | |
|---|---|---|
| Where it sits | On your business current account | A separate credit agreement |
| Repayable on demand? | Commonly yes, under the account terms | Not on demand during the availability period, subject to the facility agreement |
| Agreed availability period | None; typically reviewed annually | Yes: British Business Bank guidance describes revolving credit as tending to run from three months to two years |
| Can undrawn headroom be stopped? | Yes, under the account terms | Yes, if a drawstop condition, covenant breach or event of default is triggered |
| Review or renewal point | Usually annual | At the end of the availability period, and at any review dates in the agreement |
| Covenants and reporting | Rarely for small limits | Common on formal facilities; management accounts and financial covenants are normal |
| How it is priced | Published representative EAR at smaller limits, plus arrangement or annual facility fees | Quoted individually; may carry a commitment or non-utilisation fee on the undrawn balance |
| Who provides it | The bank holding your current account | A bank or an independent lender |
Neither product has a defensible market-wide typical cost. Current provider pricing uses incompatible bases, so a single rate band for each side would suggest a direct comparison that does not exist. We use named lenders, dated figures and the borrowing band attached to each published rate instead.
The Key Difference: Commitment and Recall
“Revolving” tells you that repaying restores your available credit. It does not tell you how long the lender has agreed to keep that credit available, which is the contractual difference that matters when your business is relying on the limit.
When a business overdraft can be reduced or recalled
Your account terms decide how and when the bank may reduce or demand repayment of an overdraft. Business overdrafts are commonly repayable on demand, and our primary-source check found no fixed notice period that applies across the market. The demand and variation clauses in your own agreement therefore matter more than any general comparison.
An overdraft limit is usually reviewed each year, with the bank controlling the timing. If you rely on it to clear payroll at the end of the month, a reduced limit agreed at a review you did not ask for can leave the business without money it had expected to use.
What a committed facility actually guarantees
A committed facility gives you better visibility, not an unconditional right to the money. Availability remains subject to the agreement, which will normally include representations at each drawdown, financial covenants, information undertakings, drawstop conditions and events of default. Allica Bank’s own 2026 comparison makes the boundary clear: the structure improves certainty while preserving the lender’s contractual rights.
A committed facility moves you from “the bank can ask for it back” to “the lender can withdraw it if you trip one of these specific, written conditions”. That is a real improvement in certainty and it is worth paying something for. It is not the same as safety, and the size of the improvement depends entirely on how tight the covenants are.
How secure is each facility?
| Business overdraft | Formal committed RCF | Specialist revolving line | |
|---|---|---|---|
| Contractual availability period | None stated | Yes, set in the agreement | Varies; often a pre-approved limit rather than a committed period |
| Repayable on demand | Commonly yes | No, during the availability period | Depends on the product terms |
| Is redraw guaranteed? | Yes, up to the limit while it stands | Yes, subject to drawstop conditions | Often subject to repayment progress and current trading |
| Periodic review | Usually annual | At agreed review dates and at renewal | Ongoing, and frequently automated |
| Covenants and reporting | Rare at small limits | Normal: accounts, covenants, undertakings | Usually light; open banking data instead |
| Standing cost when undrawn | Annual facility fee at larger limits | Commitment or non-utilisation fee is common | Frequently none |
| Speed to arrange | Fast, if the limit is already agreed | Slowest, underwriting and documentation | Often days |
Specialist reusable lines belong in a separate category from committed facilities. iwoca is a useful example: its Flexi-Loan allows further borrowing up to a pre-approved limit, but iwoca does not present it as a formally committed facility with an agreed availability period. Calling both products revolving credit does not make their contractual certainty equivalent.
Revolving Credit vs Overdraft Costs Compared
The published rates are not directly comparable. Overdrafts use a representative EAR, specialist reusable credit may show both a rate per 30 days and a representative APR, and formal committed facilities are priced individually. We compare the cost in pounds instead, because choosing the smallest headline number would confuse three different pricing methods.
What UK banks charge for a business overdraft right now
These are named, current, published figures rather than a market average, and each one carries the borrowing band it applies to. We checked all of them against each bank’s own product page on 24 September 2026. Bank Rate was 3.75% on that date, held by the Monetary Policy Committee on 17 September 2026, and every variable rate below moves with it.
| Bank | Advertised rate | Applies to | Arrangement or facility fee |
|---|---|---|---|
| The Co-operative Bank | 10.20% EAR representative (variable) | Assumed £25,000 over 12 months | 1.5% of the agreed limit, minimum £50; waived up to £25,000 for Business Bank Account Plus customers |
| Virgin Money | 13.0% EAR representative; 12.25% per year variable | Unsecured overdrafts up to £25,000 | See current tariff |
| Metro Bank | 14.13% EAR (variable) | £100 to £25,000, term up to 12 months | 1.75% or £50, whichever is greater; nothing up to £500 |
| Lloyds Bank | 15.62% EAR representative; contractually 10.85% per year above Bank Rate | Unsecured overdrafts up to £25,000, turnover up to £25m | £500–£5,000: £12 a month. £5,001–£25,000: 1.99% a year, minimum £150, charged on the full limit |
| NatWest | 5.25% EAR representative, with a £300 arrangement fee in its example | Overdrafts available over 12 months | £50 up to £500; £75 to £1,500; £100 to £5,000; 1.5% above that, minimum £150 |
A representative EAR is not your personal quote, and the facility fee can matter more than a small difference in rate. Lloyds charges its 1.99% annual fee on the whole agreed limit rather than the amount used, so a £25,000 limit costs £497.50 a year before you borrow anything. That standing charge is what later shifts the break-even towards the overdraft for frequent users.
Above £25,000, the published rates simply stop. Lloyds, Virgin Money and The Co-operative Bank all cap their representative figures at that level, and Metro Bank lends to £60,000 but prices anything over £25,000 on application. If you are sizing a facility at £50,000 or more, there is no advertised number to compare and you are working from your own quote.
What revolving credit costs, and why the rates do not compare
Formal committed facilities are priced individually, usually through a margin over a reference rate, an arrangement fee and a commitment or non-utilisation fee on the unused limit. We found no market dataset that supports a reliable typical range. A useful quote therefore needs to show the margin, reference rate, arrangement fee and non-utilisation fee separately.
Specialist reusable lines are advertised differently again, and iwoca shows why the difference matters. Its Flexi-Loan starts at 1.5% per 30 days, which reads as a small number. Its own representative example is 3.33% per 30 days, described as 49% APR representative. Both figures are published by the same lender for the same product. Neither one can be lined up against a 15.62% EAR overdraft without doing the arithmetic first, which is what the next section does.
Why EAR, APR and monthly rates are not the same number
An EAR is the annual rate you would pay if you stayed overdrawn for a year, with compounding included and fees excluded. An APR includes certain compulsory charges as well as interest. A rate per 30 days is a simple periodic rate that becomes a much larger annual figure once you compound it: 1.5% per 30 days is roughly 20% a year, while 3.33% per 30 days is the 49% APR iwoca publishes. Comparing the headline numbers directly flatters whichever product happens to quote on the shortest period.
Worked cost examples
These work the total cost in pounds for the same borrowing on each product. Assumptions are stated so you can rerun them with your own quote: interest accrues daily on the drawn balance on an actual/365 basis; the overdraft column uses the Lloyds £5,001–£25,000 band at 10.85% above the 3.75% Bank Rate, giving 14.60% a year, plus the 1.99% annual facility fee charged on the full limit; the iwoca columns use its published starting and representative rates with the limit equal to the amount drawn. These are illustrations of the method, not quotes, and they exclude any account fees you would pay anyway.
| Scenario | Lloyds overdraft, first-year total | iwoca at 1.5% per 30 days | iwoca at its 3.33% representative rate |
|---|---|---|---|
| £10,000 drawn for 30 days | £319 (£120 interest plus a £199 annual fee) | £150 | £333 |
| £25,000 drawn for 90 days | £1,397.50 (£900 interest plus a £497.50 annual fee) | £1,125 | £2,497.50 |
| £50,000 drawn for six months | No published rate at this size: on a quoted 14.60% it would be £4,635, including a £995 fee | £4,550 | £10,101 |
At £50,000, there is no advertised overdraft rate that can settle the comparison. Substitute the rate and fees from your own quote into the same calculation, then compare the total cost in pounds. The product with the smaller headline rate may still be the more expensive one.
The break-even: how often you draw decides the winner
An overdraft with an annual facility fee behaves like a season ticket. You pay a fixed amount for access and then a low rate for use. Reusable credit priced per 30 days behaves like a single fare: nothing when you are not borrowing, more per day when you are. Which is cheaper depends on how much of the year you are actually overdrawn, and that single number does more work than any rate comparison.
Take a £25,000 limit. On the Lloyds band above, interest runs at £10.00 a day and the facility fee is £497.50 a year whether you borrow or not. iwoca’s starting rate on the same balance is £12.50 a day and nothing when you are clear. The two cost the same at about 199 drawn days a year. Below that, the specialist line is cheaper; above it, the overdraft is. Against iwoca’s representative rate of £27.75 a day, the break-even falls to roughly 28 days, after which the overdraft wins comfortably.
That result runs against most of what you will read elsewhere. The overdraft is not the expensive option you keep for rare emergencies. On these published figures it is the cheaper option for a business that is overdrawn most of the year, and the standing fee is what makes it so. The reusable line wins on short, occasional borrowing, precisely because you stop paying when you repay. If I had to reduce this page to one instruction, it would be to count your drawn days before you compare a single rate.
Your own quoted rate will move the break-even, so the published example is a method rather than a forecast of your cost. A formal committed facility also sits between the two pricing models: like an overdraft, it can carry a standing cost, but that fee buys agreed availability subject to the contract.
How a Business Overdraft Works
An overdraft is a limit agreed on your business current account. It works without you doing anything: when a supplier payment takes the balance below zero, the account keeps paying and you start accruing interest on the amount you are down. Money coming in clears it automatically, so a business that dips under on the 20th and is back in credit on the 25th has borrowed for five days and pays for five days.
That automatic behaviour is the whole appeal, and it is worth more than it sounds. There is no drawdown request, no transfer, no decision to make at the moment the money is needed. For the business that goes under twice a quarter by a few thousand pounds, the alternative products are solving a problem it does not have.
The drawbacks are the annual review, the fee structure at larger limits and the link to the bank holding your current account. Moving banks means renegotiating the overdraft as well. There is no sound general rule that overdrafts are harder to grow: Metro Bank lends to £60,000, while The Co-operative Bank goes to £10m with a relationship manager. Your bank, turnover and security decide the practical limit.
How Revolving Credit Facilities Work
A revolving credit facility is a separate agreement with its own limit and term. You request funds when needed, repay them, and restore the headroom for another draw, with interest running only on the amount used. British Business Bank guidance says availability tends to run from three months to two years, with an extension possible if repayments are up to date and the lender’s criteria are still met. There is no universal term.
The facility can sit with a lender other than your bank, and that independence has real value: your working capital stops depending on one institution’s appetite, and you can move your current account without putting the credit line at risk. On a formal facility you pay for that with an arrangement fee, usually a commitment or non-utilisation fee on the undrawn portion, and a reporting burden that an overdraft would not impose on you.
Is a business line of credit the same thing?
Not quite, and the distinction is worth holding on to. Revolving credit is the mechanic: repay, and the headroom comes back. A business line of credit is the broad category for borrowing up to an agreed limit, and covers everything from an overdraft to a specialist online facility. A formal RCF is one implementation of revolving credit, documented for an agreed availability period and typically carrying covenants, security and a non-utilisation fee.
Read that hierarchy in the right direction and the marketing stops being confusing. Every formal RCF is a line of credit; not every line of credit gives you a formal RCF’s contractual certainty. Our guide to business lines of credit covers the broader category, and how committed RCFs work goes into the formal structure in detail.
Limits, Eligibility and Security
Facility sizes and underwriting
Neither product is inherently the larger one. Published overdraft limits can reach £10m, while revolving facilities also span very different business sizes. Your turnover, trading history, security and the lender’s appetite will do more to determine the limit than the product label.
The more reliable structural point is where the headroom comes from. An overdraft limit is set against the account and revisited at review; a facility is sized at the point of agreement and holds for its term. If your borrowing need is going to grow inside the next twelve months, that is a question about which lender will re-underwrite you quickly, not about which of the two products is inherently bigger.
Personal guarantees and security
A lender may require a director’s personal guarantee, security over company assets, or both. The requirement varies by provider, facility size, business profile and existing security: The Co-operative Bank, for example, says an overdraft may be secured above £10,000. We found no current market dataset that supports a claim that most facilities require a personal guarantee.
Whether you are asked for one matters far more than the product you choose, because a guarantee puts your own house and savings behind the company’s borrowing. Ask early, get the answer in writing, and read our guide to personal guarantees before you sign one.
Reporting and covenants
Formal facilities normally come with information undertakings and financial covenants: management accounts on a schedule, annual accounts within a set period, and tests such as interest cover or leverage. Overdrafts at smaller limits rarely carry any of this. If your finance function is one person doing the books between other jobs, treat the reporting schedule as a genuine cost of the facility, because a missed covenant certificate can be an event of default.
Which Is Better for Your Business?
Start with the number of days you expect to borrow during a typical year. Occasional shortfalls favour borrowing with no standing cost, while regular use makes an overdraft fee easier to justify. Contractual certainty then becomes the second question, particularly if losing access during a busy period would stop the business paying its bills.
Occasional cash-flow gaps
If your current account slips below zero occasionally and returns to credit within days, an overdraft is usually the simplest answer. A specialist reusable line is a reasonable alternative if your bank will not offer one. A committed facility is harder to justify at this level of use because its arrangement and non-utilisation fees make you pay for credit you rarely need.
Regular working-capital requirements
If you are drawn most weeks, the arithmetic changes and the standing fee starts paying for itself. On the published figures above, a £25,000 overdraft is cheaper than iwoca’s starting rate once you are drawn for more than about 199 days a year, and cheaper than its representative rate after about 28. Get a formal facility quoted as well and run the same calculation, because the contractual certainty may be worth a small premium even where it loses on cost alone.
Seasonal businesses
A concentrated borrowing season (stock in before Christmas, receipts in January) is the case where a committed facility earns its fee, because you are buying availability at the one moment you cannot afford to be reviewed. Size it to the peak, ask what the non-utilisation fee costs across the quiet months, and check whether the availability period actually covers your next two seasons rather than expiring in the middle of one.
Growing businesses
Growth argues for a facility mainly because it takes your working capital off a single banking relationship, not because facilities are inherently larger. If you expect to switch banks, add a second lender or go through a funding round in the next two years, having the credit line documented separately is one less thing to renegotiate.
Regulation and Borrower Protections
FCA regulation, Financial Ombudsman eligibility and FSCS compensation do different jobs. The first determines which regulatory rules apply, the second determines who may bring a complaint, and the third protects eligible deposits when an authorised firm fails. Only the first two are relevant to a borrowing agreement.
FCA regulation depends on the borrower and the agreement. Lending to a limited company is commonly outside the consumer credit perimeter, which is a statement about which rules govern the contract, not about whether you can complain.
Financial Ombudsman eligibility is a separate test, and most small businesses pass it. The Ombudsman’s small-business service states that about 99% of UK small businesses can bring a complaint. It covers micro-enterprises (fewer than 10 employees and turnover or a balance sheet no greater than €2m) and small businesses with turnover under £6.5m and either a balance sheet under £5m or fewer than 50 employees. It also covers individuals acting as personal guarantors for loans to businesses they are involved in. For small businesses the complaint must concern an act or omission on or after 1 April 2019.
FSCS is about compensation when an authorised firm fails, and it protects deposits rather than borrowing. It is not a useful yardstick for choosing between an overdraft and a facility.
When Neither Is the Right Structure
Both products are built for a gap that opens and closes. If yours does not close, neither is the answer and a bigger limit will only postpone the problem. Where the gap sits in unpaid invoices, invoice finance releases the cash already earned instead of lending against it twice. Where it is a permanent shortfall in working capital, our working capital finance guide sets out the structures that fit. And if your bank is reducing an existing limit, overdraft alternatives covers the replacement routes in order of speed.
Revolving Credit vs Overdraft FAQs
Is a revolving credit facility cheaper than an overdraft?
Borrowing frequency decides which product is cheaper. On a £25,000 limit, a Lloyds overdraft at 10.85% above Bank Rate plus its 1.99% annual fee costs the same as iwoca’s 1.5% per 30 days at around 199 drawn days a year. Below that point the reusable line is cheaper; above it the overdraft is. A formal committed facility is priced individually, so apply the same calculation to your quote.
Can my bank withdraw my overdraft?
Business overdrafts are commonly repayable on demand, and the notice you are entitled to is set by your own account terms rather than by any market-wide rule. We do not publish a standard notice period for this reason. Read the demand and variation clauses in your business banking terms, and expect the limit to be reviewed at least annually.
Can an RCF lender cancel the facility?
A committed facility gives you agreed availability for its commitment period, but not an unconditional right to the money. The agreement will normally contain covenants, information undertakings, drawstop conditions and events of default, and any of those can end availability early. The certainty is real; it is conditional on the contract rather than absolute.
Which is faster to arrange?
An overdraft on your existing account is quickest, because the bank already holds your transaction data and the limit may only need a review. Specialist reusable lines can be quicker still: iwoca says its application takes five minutes and the funds typically arrive in hours. A formal committed facility is the slowest, because it carries underwriting and legal documentation. Once any of them is live, drawing is immediate.
Is a business line of credit the same as a revolving credit facility?
No. Revolving credit describes the mechanic, where repaying restores your available headroom. A business line of credit is the broad category for borrowing up to an agreed limit, and includes overdrafts. A formal RCF is one implementation, documented for an agreed availability period and usually carrying covenants and a non-utilisation fee. Every formal RCF is a line of credit, but not every line of credit gives you a formal RCF’s certainty.
Can I have both?
Yes, and for businesses with a regular base need plus occasional spikes it is often the sensible structure: the facility carries the planned borrowing and the overdraft absorbs the unplanned dips. Check first whether either lender restricts other borrowing, because facility agreements frequently do.
Do I need a personal guarantee?
A lender may ask for a director’s personal guarantee, security over company assets, or both, and the requirement varies by provider, facility size and business profile. The Co-operative Bank, for example, states an overdraft may be secured above a £10,000 limit. Ask before you apply, because a guarantee puts your personal assets behind the company’s borrowing.
How we compared revolving credit and overdrafts
Scope. We compared arranged business overdrafts with formally documented revolving credit facilities, and treated specialist reusable credit lines as a third product class rather than folding them in with committed facilities. We compared them on contractual certainty, the total cost in pounds, limits, eligibility and security.
How we cost things. We do not publish market-wide typical rate bands, because we could not source one that survived checking. Every rate on this page is a named provider’s current published figure with the borrowing band and pricing basis it applies to. The worked examples accrue interest daily on the drawn balance on an actual/365 basis, add annual facility fees in full because they are charged on the limit rather than on what you borrow, and exclude account fees you would pay regardless.
Sources, all checked 24 September 2026. Bank Rate of 3.75%, held by the Monetary Policy Committee on 17 September 2026, from the Bank of England. Overdraft pricing from the product pages of Lloyds Bank, Metro Bank, The Co-operative Bank, Virgin Money and NatWest. Reusable credit pricing and terms from iwoca. Facility term guidance from the British Business Bank. Complaint eligibility from the Financial Ombudsman for small businesses.
What changed in this update. We removed the market-wide rate bands this page previously quoted for overdrafts, bank facilities and fintech facilities, because current provider pricing does not support them and because they mixed incompatible pricing bases. NatWest publishes a 5.25% representative EAR with a £300 arrangement fee in its example, and we show both beside its fee scale.
We also removed a fixed notice period for overdraft withdrawal, which is set by your own account terms rather than by any market rule, and the claim that a facility cannot be pulled mid-term. We reclassified iwoca’s Flexi-Loan as a specialist reusable credit line rather than a committed facility, and Tide Funding Options as a credit marketplace rather than a lender. We corrected the Financial Ombudsman position and dropped FSCS as a comparison point.
Update cadence. We re-check these figures after each Monetary Policy Committee decision and whenever a listed provider changes its published pricing. The next decision is due 5 November 2026. Some links on this page are affiliate links; they never affect which product we recommend, and you can read our editorial policy for how we handle that.
Regulatory note. This page is editorial content, not regulated financial advice or a recommendation for your circumstances. Compare offers directly with providers, and read the facility agreement before you sign.