What’s the difference between a revolving credit facility and a business line of credit?

A revolving credit facility and a business line of credit are two types of flexible business finance. Both are similar to a credit card, allowing you to dip into funds as needed and repay with interest charged only on the amount borrowed. However, there are a few key differences between the two which means each of them is suited to different needs. We’ll break these finance options down to help you understand which is best for your business.

Revolving credit facility

A revolving credit facility is a type of flexible business finance that will provide you with access to a pre-approved amount of money, which can be drawn upon as needed. 
Here are the key features of a revolving credit facility: 

• One of the key advantages of a revolving credit facility is its flexibility. You can borrow funds for your business up to a predetermined limit and repay them at your own pace, as long as you stay within the agreed n terms.

• As the name suggests, the credit line "revolves" as funds are repaid, making them available for future borrowing. This revolving feature ensures ongoing access to capital without the need to reapply for a new loan each time.

• Interest is only charged on the amount of funds drawn down, not on the entire credit limit. This feature can result in cost savings for your business because you only pay interest on the funds you actually use.

Business line of credit

A business line of credit is similar to a revolving credit facility but works slightly differently:

• A business line of credit is usually opened for a specific purpose, such as financing short term working capital needs, covering seasonal fluctuations, or funding stock purchases. 

• Similar to a revolving credit facility, interest is only charged on the amount borrowed. Additionally, businesses may incur fees such as maintenance fees or transaction fees depending on the terms of the agreement.

• While a business line of credit provides the flexibility to access funds as needed, it may come with stricter repayment terms compared to a revolving credit facility. Lenders may require periodic repayments or a specific repayment schedule, for example.

Which is best for your business needs?

Whether a revolving credit facility or a business line of credit is best for your business will depend on your specific financial needs, cash flow projections and growth objectives. Here are some key factors to consider:

• Be clear about what you want to use the finance for and then determine which option has features that align with this primary purpose.

• Compare interest rates, fees and any other associated costs to assess the overall affordability of each option.

• Evaluate the flexibility of repayment terms and access to funds to ensure they meet your business' requirements.

If you're unsure which funding option is right for your business, our experts are here to help. When you search for funding with Capitalise, our dedicated Funding Specialists will take the time to understand your unique needs and business goals. With access to a panel of over 100 business lenders and deep industry expertise, they'll help match you with the most suitable lender and finance product—whether that's a loan, line of credit, or something more flexible. They'll also guide you through the entire process, from selecting the right option to preparing your application to improve your chances of approval.

Need more insights? Read our guide on how to get a business loan.

It’s also important to bear in mind that you’ll likely need a good business credit score to get a line of credit or a revolving credit facility. You can check your business credit score before applying for funding when you sign up to Capitalise.