Revolving credit facility
What is the difference between a revolving credit facility and a business overdraft?
By Sam Wells · 22 August 2026
Both let you draw funds up to a limit and pay interest only on what you use. A business overdraft is tied to your bank account and can usually be withdrawn at short notice. A revolving credit facility is separate from your bank, has a limit agreed upfront for a set term, and is generally easier to obtain now that high-street banks have scaled back overdraft lending.
On the surface they do the same job. Both give you a limit, both let you draw and repay freely, and both charge interest only on the balance in use. The differences are in who provides it, how firmly the limit is fixed, and whether you can get one at all.
The four differences that matter
It is not tied to your bank account. An overdraft sits on your current account with your bank. A revolving credit facility is a standalone agreement, often with a specialist lender rather than your bank. You can hold one alongside your existing banking without moving anything.
The limit is agreed upfront for a term. An RCF is typically agreed for 6 months to 2 years and renewed at review. An overdraft is usually repayable on demand, which means the bank can reduce or withdraw it at short notice, often precisely when trading gets difficult.
Availability. This is the practical one. High-street banks have pulled back substantially from SME overdraft lending over the past decade. Plenty of profitable businesses simply cannot get a meaningful overdraft any more. Revolving credit facilities filled that gap, and the specialist market for them is active.
Who can have one. Revolving credit facilities are generally offered to limited companies, LLPs and PLCs only. Overdrafts are available to sole traders and partnerships too. If you are a sole trader, the overdraft is your route.
Which costs more
Overdrafts often have no setup fee, where an RCF usually carries an arrangement fee of 1% to 5% of the limit. Some RCF lenders also charge a non-utilisation fee of 0.5% to 1.5% a year on the undrawn portion.
So an overdraft can be cheaper if you can get one at the size you need. In practice, the comparison is often between a revolving credit facility and no facility at all.
The short answer
If your bank will give you an overdraft of the right size, take it. If it will not, or the limit is too small, or you want a facility your bank cannot pull at short notice, a revolving credit facility is the alternative that behaves most like one.
We can compare both routes for you and say which is realistic before you spend time applying.
Written by
Sam Wells
Director, FundingLinks
Co-founder and Director at FundingLinks with over 15 years of leadership experience in commercial finance. He works directly with SMEs across the UK to structure funding across the whole lender market.
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