Why Fixed Loans Don’t Always Fit
Cash flow challenges are a reality for many SMEs. Seasonal sales, long customer payment terms, or sudden costs can all put pressure on working capital. While a lump-sum business loan can help, sometimes what you really need is flexible access to funds.
That’s where revolving credit – and other working capital facilities – come in.
What is Revolving Credit?
Revolving credit is a flexible finance facility that allows you to draw down funds, repay them, and borrow again, up to an agreed limit. It works much like a business credit card but often with higher limits and clearer terms.
- Credit Limit: Set by the lender.
- Drawdowns: Use the funds when you need them.
- Repay & Reuse: Once repaid, funds are available again.
- Interest: Charged only on the balance used, not the total facility.
It’s ideal for smoothing out short-term cash flow bumps without committing to long-term debt.
Pros and Cons of Revolving Credit
Pros:
- Flexibility to draw and repay as needed.
- Interest only paid on what you use.
- Can act as a safety net for emergencies.
- Reusable without reapplying.
Cons:
- Higher interest rates than secured loans.
- Potential for over-borrowing if not carefully managed.
- Some lenders charge fees for unused limits.
Alternatives to Revolving Credit
While revolving credit suits many businesses, it’s not the only option. Depending on your needs, these alternatives may be a better fit:
Invoice Finance
If your business waits weeks or months to get paid, invoice finance lets you unlock cash tied up in unpaid invoices. Lenders advance a percentage of the invoice value upfront, and you receive the balance (minus fees) once your customer pays.
- Best for: B2B firms with long payment terms.
- Benefit: Improves cash flow without taking on new debt.
Learn more about invoice finance.
Trade/ Supply Chain Finance
Trade finance traditionally supports businesses that import or export goods, though there are more funders emerging that can support domestic purchases. Typically, this was limited to finished goods, but some funders are starting to open their criteria to other purchases including logistics and even marketing fees. A lender pays your supplier upfront, and you repay once your customer has paid you.
- Best for: Businesses with upfront supplier payments.
- Benefit: Improves trust with suppliers and smooths supply chain transactions.
Business Buy Now, Pay Later (BNPL)
Business Buy Now, Pay Later works much like consumer BNPL but is tailored for SMEs purchasing goods or services. Instead of paying the full invoice upfront, you spread payments over several weeks or months – often interest-free if settled within the agreed period.
- Best for: Businesses managing supplier invoices, equipment purchases, or services where spreading the cost helps ease cash flow.
- Benefit: Preserves working capital by aligning outgoing payments with incoming revenue.
- Example: An SME could use BNPL to pay a supplier invoice over 90 days, while waiting for their own customers to settle.
BNPL isn’t a long-term finance solution, but it can provide short-term breathing space without the need for a traditional loan or revolving facility.
Term Loans or Asset Finance
For one-off investments (equipment, vehicles, property), a term loan or asset finance facility may be more suitable than revolving credit. These products spread the cost over a fixed term with predictable repayments.
FAQs
Is revolving credit the same as an overdraft?
They’re similar, but revolving credit is usually a standalone facility with higher limits and clearer terms.
How much can I borrow?
Facilities often range from £25,000 to £250,000, depending on your financials and lender appetite.
Do I need security?
Some revolving credit facilities are unsecured, but many require a personal guarantee, business security, or even property backed security.
Conclusion
Revolving credit is a powerful way to keep cash flow healthy and provide peace of mind when the unexpected hits. But it’s not the only option. Alternatives like invoice finance, trade finance, and supply chain finance may provide a better fit, depending on your industry and needs.
At Peak Business Finance, we’ll help you weigh up revolving credit against other working capital solutions – so you can secure the right funding for your business.