Side by side
| Criterion | Revolving credit facility | Term loan |
|---|
| Drawdown | Repeated, up to the agreed limit | Once, in full or in tranches |
| Interest cost | Charged only on the amount drawn | Charged on the full outstanding balance |
| Flexibility | High, funds available on demand | Low, fixed once drawn |
| Typical use | Working capital and seasonal peaks | Capital projects, acquisitions, expansion |
| Repayment | As cash allows, within the term | Scheduled instalments of capital and interest |
| Renewal | Usually reviewed and renewed annually | Ends when the term completes |
How the flexibility difference plays out
A revolving facility suits fluctuating needs, such as funding stock ahead of a seasonal peak and repaying once sales come in. Because interest is only charged on what is actually drawn, it can be a cost efficient way to manage short, repeated funding gaps rather than borrowing a fixed amount that sits partly unused.
A term loan suits a defined project with a clear return, where you know upfront how much you need and over what period you can realistically repay it. The certainty of a fixed schedule also makes cash flow forecasting simpler.
Cost and discipline
Revolving facilities often carry a commitment fee on the undrawn portion in addition to interest on drawn amounts, so they are not free to hold even when unused. Term loans avoid that complexity but commit you to repayments regardless of how trading performs in any given month.
Using both together
It is common to hold a term loan for a specific investment alongside a revolving facility for general working capital, giving the business both a funded project and a cushion for day to day fluctuations.
The short answer
Choose a revolving credit facility for fluctuating working capital needs and a term loan for a defined, one-off investment with a clear repayment horizon.
Questions
Is a revolving facility more expensive than a term loan?
Not necessarily, since interest is only charged on funds actually drawn, though commitment fees on the undrawn balance should be factored into any comparison.
Can a revolving facility be withdrawn by the lender?
Most are subject to annual review and can be reduced or withdrawn if trading deteriorates significantly, so it should not be relied on as permanent capital.
Can I repay a term loan early?
Many term loans allow early repayment, sometimes with an early settlement charge, so it is worth checking the terms before signing.
Not sure which route fits? Describe the requirement once and we will structure it and approach the providers whose criteria match. No upfront fees — charges are due only once funding is in place.
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