Business Lines of Credit UK: How They Work, Costs and Best Options

You get a pre-approved borrowing limit you can draw on when the money is not there yet, repay when it arrives, and draw on again the next time the gap opens. Interest runs only on what you have actually taken, and every repayment restores the headroom, so you are not making a fresh application each time payroll lands a fortnight before your largest invoice clears.

We rate it the cleanest instrument for a shortfall that keeps coming back. Where the gap is recurring, short, and clears itself once the money arrives, a revolving line will usually cost you less than a term loan for the same borrowing. Where you are funding one thing, once, and holding the balance for months, it is the wrong product and an expensive one, a distinction the marketing in this market rarely makes for you.

Types of Business Lines of Credit

“Business line of credit” is a marketing label rather than a product definition. Lenders attach it to several things that price differently, reach your money differently, and bind you differently, and those differences cost more than the shared name suggests. We have classified the five below by how each one behaves once you draw on it, not by how it is sold.

What a Business Line of Credit Is

A business line of credit gives you an agreed borrowing limit, the credit line, that sits there until you need it. You draw when cash is short, repay when your cash flow recovers, and if the facility is revolving the repaid amount becomes available again. You pay interest or fees only on what you have used, which on most fintech facilities means an untouched limit costs you nothing at all.

How Revolving Credit Works

The revolving mechanism is the whole difference between a line of credit and a term loan. Draw £15,000, repay it three weeks later, and the full £15,000 goes back into your available headroom, ready to draw again the following month without a new application, a new credit search, or another wait for a decision.

That makes it the natural tool for the gaps that arrive on a schedule: the stock you buy in September so the Christmas orders can ship in December, the supplier who wants paying before your own customer has settled up, the payroll run that lands on Friday when the big invoice clears the following Tuesday. One facility absorbs the whole pattern, and you apply once.

Business Line of Credit vs Revolving Credit Facility

These two terms describe the same core revolving principle, and UK lenders sometimes use them interchangeably. Individual facilities can differ, though, in their commitment period, security requirements, draw rules, repayment structure and renewal terms.

Some lenders use “revolving credit facility” specifically for longer, formally documented arrangements, typically one to three years, with a commitment fee on the undrawn portion, covenants, and a defined review date. Others use “line of credit” for shorter, more flexible products without those formal terms. The marketing page rarely tells you which of the two you are looking at. The facility agreement does, and it is the only document that binds either side.

If you are being offered a committed facility with covenants and a fixed review date, our Revolving Credit Facilities guide works through that structure in detail. The rest of this page deals with the broader working-capital line of credit, which is what most smaller businesses are actually shopping for.

Secured vs Unsecured Lines of Credit

A line of credit can be secured, backed by business assets, a debenture, or property, or unsecured, where the lender takes a personal guarantee from a director instead of taking security over assets. Most fintech and specialist revolving facilities for SMEs are unsecured, with a personal guarantee as the standard condition. Bank RCFs for larger facilities more commonly require a debenture or fixed-charge security.

Unsecured sounds like the safer option, and for the company it is: no asset is charged, and nothing is seized from the business if it cannot repay. For you personally it may be the opposite. A director’s guarantee moves the repayment obligation onto an individual, which means your own savings, and depending on the wording your home, stand behind a company debt. Read that clause before you read the rate.

How the Cost Works

Comparing headline rates across these products will mislead you. A daily rate on a drawn balance, a margin over base rate plus a charge for headroom you never touch, and a card purchase APR are three different mechanisms, and the cheapest-looking number regularly produces the most expensive outcome. What matters is what the facility costs you over the days you actually hold the money, and that is the basis on which we compared them.

Interest Rates

Most revolving cash facilities for smaller businesses charge interest calculated daily on the drawn balance and collect it monthly. Bank facilities run at a margin over base rate, which puts them somewhere in the range of 6–15% annualised for a well-established business. Fintech and specialist providers lend to companies with shorter trading records and less documentation to show, and they price for that: 15–40% annualised and above is normal, quoted as a representative APR reflecting the cost over a full twelve months.

iwoca published a representative APR of around 49% when we read its site in August 2026. Set against a bank margin that figure is eye-watering, and as an annual cost it genuinely is. Over a short draw it behaves differently, because you are charged for the days the money is out rather than for the year, so clearing the balance in three weeks costs a small fraction of the annual number. What it punishes is the borrower who leaves the balance sitting there, which is exactly the habit a revolving facility makes easy.

Arrangement, Draw and Facility Fees

The rate is not the whole cost. These are the charges that decide what you actually pay, and none of them appears in the headline number:

• Arrangement or setup fee: A one-off charge when the facility is established. More common on formal bank RCFs and some fintech facilities than on revolving cash products. Where charged, it typically falls in the 1–3% range on the credit limit, though some products charge no arrangement fee at all.
• Draw or transaction fee: Some revolving facilities charge a fee each time you draw, as a flat amount or a small percentage of the drawdown. This model effectively prices the cost of credit by transaction rather than by days outstanding.
• Commitment or non-utilisation fee: Applies mainly to formal revolving credit facilities, not to most fintech SME products. It charges a percentage on the undrawn portion of a committed facility, you pay to keep the headroom available. Where it exists, it typically runs at 0.5–1.5% per year on the undrawn balance.
• Early repayment: Many revolving products allow early repayment without penalty. iwoca’s Flexi-Loan, for example, charges no fee for repaying early. Check the specific product terms.

Worked Cost Examples

Here is the comparison that actually settles it. You draw £15,000 against a £50,000 revolving cash facility at 12% annualised, hold it for six weeks while you wait on a large invoice, and repay the day the money lands. The interest comes to roughly £210.

The same £15,000 taken as a twelve-month term loan at 10%, repaid in monthly instalments, costs roughly £825 in interest over the year, because interest accrues on the reducing balance with each repayment. The revolving line wins on short gaps that clear themselves once the money arrives. The term loan wins as soon as the balance stays high for months, because its rate is lower and you are paying that lower rate on every one of those days.

That comparison only holds if both products are being asked to fund the same need. A revolving facility at 40% APR carrying a balance for four months costs considerably more than a term loan at 10%, and no amount of flexibility makes up the difference. Work from the number of days you will hold the money and the way each product charges for them, not from the name on the product.

What Lenders Look For

What you want from an application is a facility large enough to be useful, approved without leaving a trail of hard credit searches for products you were never going to get. The factors lenders weigh are broadly the same everywhere. The thresholds are not, and they differ enough that a decline from one lender tells you very little about the next, which is why the order you apply in is worth a few minutes of thought.

Trading History

Banks want 12–24 months of trading behind you, evidenced by filed accounts and a business current account, and most bank lines start at £10,000 for limited companies and established sole traders.

Fintech and specialist lenders work with shorter histories, because Open Banking lets them read what your account actually did last month rather than waiting on accounts that are already nine months old by the time they are filed. That is a real advantage if you are eighteen months in and trading profitably with only one set of accounts to show for it.

Funding Circle’s FlexiPay revolving facility required at least one year of trading when we read its product pages in August 2026. iwoca weighs Open Banking data alongside business financials rather than relying on filed accounts alone. Criteria in this market move often enough that a published minimum is better treated as the opening position than as a rule.

Turnover and Cash Flow

Most lenders weigh your cash-flow cycle as heavily as a credit score, and a predictable gap reads far better than an unexplained one. A business that borrows every autumn to fund stock, or one whose largest client pays thirty days late while payroll leaves on the last Friday of the month, is describing a timing problem an underwriter can model. A business that simply runs short is describing something else, and it will be read that way.

Minimum turnover is the least transparent part of this market. Some lenders publish a threshold, most do not, and where a figure exists it usually applies to one product rather than to the lender’s whole range. Do not read one provider’s published minimum as a guide to anybody else’s.

Credit Checks and Personal Guarantees

Most lenders run a credit search on the business and, where directors are involved, on them too. Several fintechs offer a soft search for an initial eligibility quote, which leaves no mark on your file. A full application usually involves a hard search that is recorded and visible to the next lender you approach, which is the practical reason to check eligibility before you apply rather than after.

Expect a director’s personal guarantee on almost any unsecured facility. Read that clause before you read the rate: it is the one that moves the debt off the company and onto an individual if the business cannot repay, and it outlives the company being wound up. Our personal guarantees guide sets out what the wording does in practice and where there is any room to limit it.

Line of Credit vs Other Business Finance

Rate is the last thing to look at here, not the first. What you are funding, and how many days you will hold the money, decides the product, and choosing the wrong one costs far more than a few points of interest ever will.

Line of Credit vs Business Loan

Ask one question: do you need money once, or access repeatedly? A recurring need points to a line of credit; a one-off need points to a term loan.

A term loan hands you a lump sum and charges interest on the full outstanding balance from day one. A line of credit gives you a ceiling and charges interest only on what you draw. For a need that self-liquidates in weeks, a supplier payment, a seasonal stock buy, the line of credit is almost always cheaper. For a large sum held for months, equipment, a fit-out, the term loan wins, because its rate is lower and the structured repayment does the discipline for you.

See our business loan guide for a full breakdown of term finance options.

Line of Credit vs Business Overdraft

The key difference is commitment. A contracted line of credit is agreed for a set term and cannot be pulled on a whim. A traditional bank overdraft is usually repayable on demand, the bank can reduce or withdraw it at short notice, often exactly when your cash flow is already under strain.

Overdrafts sit on the current account you already use, which makes them convenient for small, short timing mismatches. A specialist line of credit gives you more headroom and a contracted term, at a higher headline rate. Where your gaps fit comfortably inside the overdraft limit your bank will actually grant, we rate the overdraft the better answer: it is cheaper, and it is already sitting on the account. Where you need more room than that, or you cannot afford to have the facility withdrawn in the month you most need it, the committed line earns the extra cost.

For a detailed comparison, see our revolving credit vs overdraft page.

Line of Credit vs Business Credit Card

A business credit card and a revolving cash line both offer reusable credit, but they are different products with different use cases. A credit card is a spending instrument, you use it to pay suppliers, cover travel, or manage day-to-day costs, and the limit is accessed at the point of purchase. A revolving cash facility delivers cash to your bank account, which you can then use for payroll, HMRC bills, or any payment your card cannot cover.

Capital on Tap, for example, offers a business credit card with a limit of up to £250,000, and we rate it highly for card-based business spending. It is not a cash line of credit. If what you need is money in your business account, payroll, a VAT bill, a supplier who will not take cards, the card cannot deliver it however large the limit is.

Business card purchase rates typically run at 19–24%, and the cash-advance rate sits well above that, with interest starting on the day you take the money and no interest-free period at all. Pulling cash off a business card is one of the most expensive ways a UK business can fund a shortfall, and it is difficult to justify when a revolving cash facility exists to do that exact job.

A revolving line carries a higher headline rate than a card purchase rate but can still cost less in practice, because you pay only for the days the balance is outstanding. For card spending you clear each month, the card is the efficient instrument; for cash working capital, price the revolving facility properly. See our business credit cards section for card comparisons.

Line of Credit vs Invoice Finance

If your gaps arise mainly because customers pay slowly, invoice finance is usually the better match. The lender advances a percentage of each invoice as you raise it, so the borrowing scales with your sales instead of sitting inside a fixed limit you negotiated months ago and may have outgrown.

A line of credit is the more flexible answer when the gaps come from several directions at once, payroll one month, stock the next, a VAT bill in between. Where a slow-paying customer base is the whole problem, we recommend pricing both before you commit, because invoice finance often costs less for the same amount of working capital.

Common Ways Lines of Credit Go Wrong

The limit is not cash you own, and of everything we weighed in this category the most expensive mistake is the one that looks least like a mistake. A £50,000 line sitting permanently drawn at £45,000 has stopped being a working-capital tool. It has become a term loan you are paying revolving-facility rates for, and you have kept none of the flexibility those rates are charging you for.

Two things go wrong at once. Your headroom is gone, so the facility can no longer do the job you took it out to do, and interest keeps accruing on a balance you are never actually clearing. If the drawn balance was £45,000 in January and it is still £45,000 in March, that is not a cash-flow gap, it is a funding shortfall, and refinancing onto a term loan will almost certainly cost you less.

Never fund capital spending on a revolving line either. A van, a machine, or a batch of stock you will still be holding in six months costs far more here than on asset finance or a term loan built for the purpose, because the revolving product is priced for days and weeks. Stretching it across a full accounting year is an expensive way to fund a balance you carry permanently.

The quietest mistake is the renewal. Most revolving arrangements carry a review at around twelve months, at which the lender reassesses the limit and the price, and most borrowers simply let it roll. If your revenue has grown since the original application, that review is a negotiation you are walking away from. Go into it with the updated figures and ask for both the limit and the rate to move.

How to Apply for a Business Line of Credit

Bank facilities and fintech facilities run on different clocks. A bank wants filed accounts and a full credit review, and a week to ten days is normal. A specialist lender reading your Open Banking feed can come back inside 24–48 hours, because it is looking at what your account did last Tuesday rather than at what your accountant filed last autumn. If you can see the gap coming, arrange the facility before you need it, on most fintech products an undrawn limit costs nothing to hold.

1. Define the gap. Work out how much you are short, how often it happens, and how long it lasts. That sets the facility size, and it tells you whether a revolving product genuinely fits or whether you are really describing a one-off need.
2. Choose the product type. Use the comparison table at the top of this page to confirm you want a cash revolving facility rather than a credit card, an overdraft, or a term loan. Lenders will happily sell you the wrong one.
3. Check eligibility before you apply. Read each provider’s published criteria on trading history, turnover and business structure, and use a soft-search eligibility check wherever one is offered. It costs nothing, leaves no mark, and it saves you a recorded hard search on a product that was never going to be approved. We rate this the single highest-value step in the whole process: start with the lenders whose published criteria you clearly meet, not with the cheapest headline rate.
4. Prepare your information. Most applications want business bank statements covering three to six months, filed or management accounts, company registration details, and director information. Open Banking access is what speeds up the rest: you log in through your own bank, the lender gets read-only sight of your transaction history, and it cannot move money. That one step is usually the difference between a two-day decision and a two-week one.
5. Read the offer properly before you accept. Check what the whole facility costs you, interest, any draw fee, any arrangement fee, then the personal guarantee wording, the review or renewal date, whether there is a charge on the undrawn balance, and the conditions under which the lender can reduce or withdraw the facility. That last one is the clause borrowers skip and later regret.

Regulation and Borrower Protections

Is a Business Line of Credit FCA-Regulated?

Not automatically. Regulation depends on the borrower, the product and the lender. Lending to limited companies is generally unregulated commercial finance, it falls outside the FCA’s consumer credit regime, so the Financial Ombudsman Service and FSCS protections that apply to personal loans typically do not apply here. That is a genuine gap rather than a technicality: if a lender treats you unfairly, your route is the courts, not a free ombudsman.

Sole traders and some partnerships can in certain circumstances be treated as consumers for regulatory purposes. If you are borrowing as a sole trader or small partnership, ask the lender whether the product is regulated.

Personal Guarantees

A personal guarantee extends the repayment obligation to an individual director if the company defaults. Most unsecured revolving facilities for smaller businesses require one, and on the great majority of products in this market the guarantee itself is not negotiable. The wording sometimes is, whether it is capped, whether it is joint and several across directors, and what happens if a director leaves. Our personal guarantees guide covers what to look for and where you have any room to limit your exposure.

Business Line of Credit FAQs

Methodology and Disclosure