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A Business Line of Credit (sometimes called a revolving credit facility) is the funding tool designed specifically for timing. It’s not about buying assets; it’s about smoothing out the gap between spending money and earning it.
What is a business line of credit?
Think of it as a business overdraft, but structured differently and often with higher limits.
- You get a limit: (e.g., £25,000).
- You draw what you need: You might take £5,000 to pay a supplier today.
- You only pay on what you use: If the other £20,000 sits untouched, you generally don't pay interest on it (though some lenders charge a small monthly fee to keep the facility open).
- It revolves: As soon as you repay that £5,000, your limit goes back up to £25,000. You don't need to re-apply.
The 3 scenarios where this beats a Term Loan
A fixed-term loan puts cash in your bank on Day 1, and you start paying interest on the whole amount immediately. A line of credit is better suited for:
1. The "45-Day Gap"
You’ve finished the work, but the client pays in 45 days. Your staff and HMRC need paying now. You draw on the line to cover bills, and repay it in full the moment the client invoice clears.
2. The Seasonal Stock-Up
You’re a retailer gearing up for Christmas or Black Friday. You need to buy stock in September/October, but you won't sell it until November. A credit line covers the supplier invoice, and you clear the debt from the sales revenue.
3. The Opportunity Grab
A supplier offers a bulk discount for immediate payment, or a competitor closes down and offers cheap inventory. A credit line lets you say "yes" instantly without waiting weeks for a loan application.
When should you avoid it?
It is crucial to match the finance to the need. Do not use a line of credit for long-term assets.
If you are buying a van, a piece of machinery, or paying for a renovation, a term loan is usually cheaper and structured better. Using a flexible, short-term facility for a 3-year asset purchase will likely cost you significantly more in interest.
What lenders are actually looking for (The "Yes" criteria)
When you apply for a term loan, lenders look at your long-term profitability. When you apply for a Line of Credit, they look at your cash flow hygiene.
They want to see:
- Regular Turnover: Is money hitting the bank account consistently?
- Bank Discipline: Do you live constantly in your unarranged overdraft, or do you manage your balance well?
- Affordability: If you drew down the full amount, could your current cash flow handle the repayments?
Note: Many modern lenders connect to your Open Banking data or accounting software (like Xero/QuickBooks) to make these decisions in minutes, rather than weeks.
The costs: What to watch out for
Don’t just look at the interest rate. When comparing offers, check:
- The Interest Rate: Usually charged daily or monthly on the outstanding balance.
- The Drawdown Fee: Does the lender charge a small % every time you withdraw cash?
- The Non-Utilisation Fee: Is there a monthly cost just to have the facility sitting there, even if you don't touch it?
How to apply
Don't just apply blindly. Get your "house in order" first:
- Update your books: Ensure your latest month’s trading is reconciled in your accounting software.
- Know your number: Don't ask for "as much as possible." Ask for a limit that covers roughly 1–2 months of operating expenses.
- Check your statements: If last month looked unusually bad (e.g., a one-off large expense), be ready to explain it.
How Business Score helps
🚀At Business Score, we're on a mission to make access to business funding fair, simple and fast.
We work with multiple lenders and funding options so that you don't have to. Rather than applying to 10 different platforms and hoping one says yes, we help match your business profile—your turnover, how long you've been trading, the reason for funding—to the lenders most likely to approve you. We handle the legwork, keep the process transparent, and take the stress out of finding the right funding fit.
Navigating the market alone can be tricky because "Line of Credit" products vary wildly in price and structure. We strip away the complexity so you can compare options side-by-side and make a confident decision.
Disclaimer: We are a broker, not a lender. Decisions are made by the funding providers based on their criteria.
Ready to see your options?
If you want to smooth out your cash flow with fair, simple funding, Apply via Business Score today. Tell us a little about your business, and we'll show you the funding routes available to you.
