Overdraft vs revolving credit facility

Two flexible options that look alike

A business overdraft and a revolving credit facility both work on the same appealing principle: a pre-agreed limit you can draw on when you need it, repay as cash comes in, and reuse — paying only for what you use. Both are designed for the same job, smoothing the uneven gap between money going out and money coming in.

Because the principle is identical, they are easy to confuse. The differences lie not in how you use them day to day but in how secure they are, how they renew, and how easy each is to obtain in the current market. Those differences matter a great deal when the facility is propping up your cash flow.

How they differ on cost and certainty

The biggest distinction is certainty. A traditional overdraft is usually repayable on demand — the bank can reduce or withdraw it, often with little notice, exactly when conditions tighten and you may need it most. A dedicated revolving credit facility is a committed arrangement for an agreed period, so the headroom is contractually there for the term, giving you far more reliable planning.

On cost, both typically charge only on the drawn balance, but an overdraft may add arrangement and renewal fees and can carry steep unauthorised rates if you exceed the limit. A revolving facility's pricing is usually clearer and agreed up front. For genuine working-capital planning, the certainty of a committed line is often worth more than a marginal rate difference.

Why overdrafts are getting harder to get

Business overdrafts have quietly shrunk as a product. Many high-street banks have reduced or withdrawn overdraft facilities, tightened the criteria, or steered customers towards other products. For a lot of businesses — particularly younger ones or those without a long banking relationship — a meaningful overdraft is simply no longer on offer, or comes with limits too small to be useful.

That retreat is one reason dedicated revolving facilities and other overdraft alternatives have grown to fill the gap. They are built specifically to do the job overdrafts used to, often with clearer terms and more committed availability. If your bank has pulled or shrunk your overdraft, a standalone facility is usually the natural replacement.

Choosing between them

If you already have a generous, stable bank overdraft and value its integration with your current account, it can be a perfectly good tool for short, everyday smoothing. But if you need certainty the headroom will be there, want clearer pricing, or your bank has reduced what it offers, a committed revolving credit facility is generally the stronger choice.

Whichever you use, the discipline is the same: draw for a clear reason and repay as the cash you bridged arrives, rather than letting the balance sit permanently drawn. Credicorp's Flex facility is lent to the company with no personal guarantee; you can register to apply. This guide is educational and not financial advice.