What is revolving credit? A comprehensive guide

There’s no denying it’s incredibly tough for small business owners at the moment, so access to flexible funding is crucial for maintaining cash flow, seizing opportunities, and weathering (the almost neverending) unforeseen challenges. 

For UK businesses of all sizes, one of the most adaptable financial tools available is revolving credit.

While often associated with personal credit cards, revolving credit is equally relevant and beneficial to businesses. This post provides a comprehensive overview of what revolving credit means for UK businesses, how it works, the pros and cons, and how it compares to other forms of business finance available in the UK.

What is revolving credit for businesses?

Revolving credit is a type of credit facility that allows your business to borrow up to a pre-approved limit, repay it (either partially or in full), and then borrow again as needed - without reapplying. 

Unlike a fixed-term loan, which is paid off in instalments over a set period, revolving credit is designed for ongoing access to funds.

This type of facility is well-suited for covering short-term cash flow gaps, managing seasonal expenses, or handling unexpected costs.

Revolving credit is best suited to industries that experience fluctuating cash flow, seasonal income or having ongoing short-term funding needs. For this reason, it's particularly suited to certain industries, see below.

Which industry is revolving credit best suited to?

How does business revolving credit work in the UK?

In the UK, revolving credit typically comes in the form of:

• Business credit cards

• Business overdrafts

• Business lines of credit / flexible business loans

Here’s how it typically works:

1. A lender (such as a UK bank, alternative lender, or fintech provider) sets a credit limit based on your business’ credit profile and financial health.

2. Your business can draw funds up to that limit and repay them at any time.

3. Interest or fees are only charged on the outstanding balance, not the total facility.

4. The credit line is renewable - once repayments are made, funds become available again.

Types of revolving credit available to UK businesses

All three options can be helpful, and they each have varying features and benefits so it’s best to think about your specific need but also how the costs of each facility then stack up.

1. Business credit cards

Offered by banks and financial institutions, these are similar to personal credit cards but designed for business use.

Key features:

• Credit limits based on business turnover and credit score

• Rewards schemes (e.g. cashback, reward points)

• Separation of personal and business expenses

• Typically higher interest rates if the full balance isn’t repaid each month

2. Business overdrafts

An overdraft is linked to your business current account, allowing you to spend beyond your balance up to an agreed limit.

Key features:

• Interest is charged on the overdrawn amount

• Usually reviewed annually by the bank

• May be secured or unsecured

• Fees may include arrangement or renewal charges

3. Revolving credit facilities / lines of credit

These are standalone credit products offered by UK banks and alternative lenders (like us here at Lenkie) that work similarly to credit cards but with larger limits and more flexible terms.

Key features:

• Access to funds on-demand

• Only pay interest on what you borrow

• Can be repaid and reused as needed

• Typically used for working capital

Benefits of revolving credit for UK businesses

The concept of credit can have a negative connotation, and some busy owners are wary of taking on debt. 

However, when used strategically, revolving credit can provide lots of flexible benefits for your business.

1. Cash flow flexibility

One of the biggest benefits of using a revolving credit facility is that it can really help with short-term cash flow pain. This is particularly useful if your small business deals with irregular income or awaiting payments under long supplier terms (e.g. 30 to 90 days).

2. Access to funds without reapplying

Once your credit facility is approved, you can use it as needed without going through a new application process, saving you time and hassle. It can also be more cost-effective than needing to rely on lots of different finance solutions.

3. Builds business credit

Unlike consumer credit, where debt can have a negative impact, there’s no negative connotation for having facilities in business - it’s more reliant on your repayment behaviour.

In fact, using a credit facility responsibly can improve your business credit profile with UK credit reference agencies such as Experian UK, Equifax, and Creditsafe.

4. Short-term financing

Revolving credit is ideal for managing inventory, bridging invoice payments, or handling surprise expenses like equipment repairs or supply chain delays.

It’s there when you need it, which can be reassuring when navigating the unpredictability that running a small business can bring.

5. No early repayment fees

Most revolving credit products do not penalise early repayment, allowing businesses to manage debt on their own terms.

When looking for a provider, make sure you look at the finer details of the facility and any potentially hidden costs.

Risks and considerations

While there are lots of benefits, it’s also important to consider any potential risks - and to understand what you need to be looking out for when applying for a specific product. 

1. High interest rates

Revolving credit, especially business credit cards or unsecured overdrafts, can carry high APRs if not repaid in full each month. Some credit facilities also charge big set up or recurring monthly fees. 

2. Easy to overspend

The flexibility of revolving credit can lead to poor budgeting if the facility is used to fund ongoing losses instead of genuine short-term needs.

This is really important. At Lenkie, we can fund working capital expenses to ensure the facility is used in the right way. 

3. Variable interest rates

Lots of facilities have variable rates, meaning your repayments could increase if interest rates rise (particularly relevant in a volatile economic climate).

What’s crucial is that you really understand the costs of any finance you take, before you go ahead and what that looks like from a repayment perspective.

4. Credit impact

While there’s no negative impact on your credit history for having these types of facilities, as mentioned above missed or late payments can harm your business credit rating.

Ultimately, this may limit access to future funding.

Revolving credit vs term loans in the UK

As most business owners are more familiar with traditional term loans, it can be easy to turn to them as a first point of call. 

They both serve different purposes so it’s important to look at how you might use them differently.

Key insight: Typically business credit is associated with more day-to-day operational needs or for when you’re in crisis, while term loans are considered ideal for capital expenditure or strategic growth. However, lots of businesses are using the flexibility of revolving facilities as a tool for growth.

Best practices for managing revolving credit

The key with any business funding is to use it as an effective tool and to avoid financial strain.

It should be there to help ease cash flow problems, not to cause more. To use revolving credit effectively you should:

• Monitor usage carefully: Regularly review spending and avoid unnecessary borrowing.

• Repay promptly: Make payments in a timely manner, according to the terms of your facility and think about how to avoid additional costs where possible. For a credit card, for instance, it’s best to clear the balance in full each month where possible to avoid interest charges.

• Avoid overreliance: Don’t use revolving credit to cover persistent cash shortfalls - this could signal deeper financial issues.
  Understand the terms: Be aware of fees, renewal terms, and how interest is calculated.

• Check your business credit report: Review your report periodically with Experian, Equifax, or Creditsafe to ensure accuracy.

Final thoughts

For UK businesses, revolving credit is a highly valuable and flexible financial tool - especially when dealing with the realities of variable income, delayed invoices, and operational demands. It offers quick access to working capital without the long-term commitment of a loan.

However, with flexibility comes responsibility. It’s essential to manage revolving credit strategically and conservatively. Used wisely, it can enhance cash flow, build business credit, and support sustainable growth.

At Lenkie, our business line of credit offers limits of up to £1m to cover working capital. We pay your supplier invoices directly (and confidentially).

Create a free account now to get a pre-qualified limit in just 2 minutes and see how we could help your business.