Term loan vs revolving credit facility

2 min read

Lump sum vs limitCore structure difference

Fixed vs flexibleRepayment pattern

One-off vs recurringBest-fit need

The structural difference

The two products solve different shapes of problem. A term loan is a single lump sum, paid into your account once, then repaid over an agreed period — commonly 3 to 24 months for short-term commercial borrowing — in scheduled instalments. You know the total cost on day one and the balance only ever falls.

A revolving credit facility is not a sum at all; it is a pre-agreed limit you can dip into whenever you need. Draw £20,000 this week, repay it next month, draw again in the spring — the limit refreshes as you clear the balance, and you generally pay interest only on what is actually outstanding. Think of the term loan as a purchase and the revolving line as a reusable tool.

How each is priced

On a term loan you typically pay interest on the full advance for the whole term, plus a one-off arrangement fee. Because the schedule is fixed, the total cost in pounds is knowable up front — useful when you are budgeting a defined project.

A revolving facility usually carries a smaller or nil cost when undrawn (some lenders charge a modest non-utilisation fee to hold the line open), then interest on the drawn balance for the days it is out. If you borrow in short bursts and repay quickly, that can work out cheaper than a term loan sized to your peak need. If you keep the line fully drawn for months, a term loan may be cheaper. Our fees guide breaks the charges down, and the loan comparison calculator lets you model both in pounds.

Which situations suit which

	Term loan	Revolving facility
Funding shape	One defined need	Recurring, unpredictable gaps
Repayment	Fixed instalments	Draw and repay freely
Cost when idle	Full interest runs	Little or none
Budgeting	Total cost known up front	Depends on usage

A term loan suits a single, sized purchase — a piece of equipment, a marketing push, a tax bill you can clear over a year. A revolving line suits the business whose cash simply ebbs and flows: seasonal swings, lumpy customer payments, the gap between winning work and being paid for it.

The Credicorp view

Credicorp offers both a fixed-term business loan and a flexible Credicorp Flex revolving facility, and many companies use them side by side — a term loan for the known project, a line for the day-to-day wobble. Both are lent to the company with no personal guarantee. If you are weighing the two, our loan vs credit line decision guide goes deeper, or you can register to apply. This is educational content, not financial advice.

Frequently asked questions

Is a revolving credit facility cheaper than a term loan?

It can be, if you borrow in short bursts and repay quickly, because you pay interest only on what is drawn for the days it is out. A term loan charges interest on the full advance for the whole term, so it tends to cost more when the funds sit idle but is often simpler to budget for a single, defined need.

Can I have both a term loan and a revolving facility?

Yes, and many companies do. A term loan funds a specific one-off purchase while a revolving line covers the day-to-day cash swings. Credicorp offers both to limited companies with no personal guarantee.

Which is faster to set up?

Both short-term facilities are typically arranged in days rather than weeks, because the assessment focuses on recent trading and affordability. Once a revolving line is agreed, subsequent draws are usually near-instant, which can make it faster in practice for repeat needs.