The short answer
A business bank overdraft and a revolving credit facility both provide flexible access to working capital — but they work differently, cost differently, and suit different types of businesses.
A bank overdraft is attached to your bank account and functions as a buffer when your balance goes below zero. A revolving credit facility is a standalone product — an approved pot of money you can draw from, repay, and draw again — independent of your bank.
For many established UK businesses, a revolving credit facility provides more flexibility, faster access, and lower total cost than a traditional bank overdraft. But the right answer depends on your specific situation.
Side-by-side comparison
| Feature | multifi Flexi Credit (Revolving Credit Facility) | Business Bank Overdraft (UK High Street Bank) |
|---|---|---|
| How it works | Draw funds to your bank account, repay, draw again — up to your credit limit | Borrow when your account goes below zero, up to an agreed overdraft limit |
| Credit limits | £10,000 – £350,000 | Typically £1,000 – £250,000 (varies by bank and relationship) |
| Interest rate | From 1.99% per month on drawn funds | Typically 6%–15% EAR (varies by bank and risk) |
| Interest charged on | Funds drawn — never on unused limit | Balance used (some charge on full limit) |
| Arrangement fee | £0 | Typically 1%–2% of facility per year |
| Annual renewal fee | None | Common — facility reviewed and recharged annually |
| Non-utilisation fee | £0 | Common — charged even when not borrowing |
| Early repayment fee | £0 | None (overdrafts are demand facilities) |
| Application process | Online, Open Banking, typically 24 hours | Via your bank, often requires relationship manager, can take weeks |
| Documents required | None under £100,000 (Open Banking only) | Accounts, bank statements, business plan typically required |
| Can bank withdraw it? | No — agreed facility for the term | Yes — banks can reduce or withdraw overdrafts at any time |
| Tied to bank account? | No — funds paid to your existing account. No need to switch bank. | Yes — only available from your business bank |
| First repayment | Not due for 60 days | Interest charged daily from day of use |
| Reload / revolving | Automatic at 66% repaid | Automatic (always available up to limit while account is active) |
| Min. trading required | 12 months | Typically 1–2 years with the bank |
| Security required | Personal guarantee only | Personal guarantee and sometimes debenture |
| Regulated | Yes — FCA via Modulr FS Ltd, FRN 900573 | Yes — FCA regulated banks |
The hidden costs of business overdrafts
Bank overdrafts are often perceived as cheap and simple — but the total cost can be significantly higher than it appears once all fees are factored in.
Arrangement fees
Most business overdrafts carry an annual arrangement fee of 1%–2% of the approved limit. On a £50,000 overdraft, that is £500–£1,000 per year simply for having the facility available — regardless of whether you use it.
Annual renewal
Business overdrafts are typically reviewed and renewed annually. This means your bank can reduce the limit, increase the rate, or withdraw the facility entirely — often at short notice and sometimes at a critical moment for your business. multifi Flexi Credit is a fixed facility for the agreed term.
Non-utilisation fees
Some business overdrafts charge a non-utilisation fee — a cost for having the overdraft available even when you are not using it. multifi charges nothing unless you draw funds.
The real cost comparison on £20,000 for 30 days
multifi Flexi Credit: £20,000 drawn at 2.49% per month = approximately £498 in interest for 30 days. Zero arrangement fees. Zero non-utilisation fees. Zero annual renewal cost.
Note: For very short-term use (days), a bank overdraft's lower monthly rate may be cheaper. For regular, planned use of working capital over weeks, the total cost picture is more nuanced once structural fees are included. Always calculate total cost for your specific usage pattern.
When a bank overdraft makes more sense
A business bank overdraft is likely the better choice if:
- You need a very small buffer (under £10,000) as a safety net rather than a planned working capital tool
- You already have a strong relationship with your bank and have been offered an overdraft on favourable terms
- You need something that operates automatically as your account balance fluctuates, without drawing funds separately
- You borrow very infrequently and for very short periods (days rather than weeks)
When a revolving credit facility makes more sense
✅ Choose a revolving credit facility if
- You need more than £10,000 regularly for working capital
- You want a facility independent of your bank
- Zero fees is important to you
- You want to plan your cashflow with fixed monthly repayments
- You need a decision in 24 hours, not weeks
- You want to draw to third-party suppliers directly
- You don't want to risk the bank withdrawing the facility
- You are on 30, 60, or 90-day customer payment terms
Consider a bank overdraft if
- You need a small buffer (under £10,000)
- You have an existing strong bank relationship
- You need instant, automatic access when your balance dips
- You borrow for days at a time, not weeks
- Your bank is offering favourable terms with no fees
The bank relationship problem
One of the most significant practical differences is that a business overdraft is tied to your bank. If your bank decides to reduce your overdraft, withdraw it, or increase the rate — as many did during the COVID-19 pandemic and the cost-of-living crisis — there is very little you can do quickly.
A revolving credit facility from multifi is entirely independent of your bank. You do not need to switch your current account, and multifi's decision to provide your facility is not affected by your bank's internal policies or changing risk appetite.
The bottom line
For established UK limited companies that regularly use working capital — paying suppliers ahead of receiving payment from customers — a revolving credit facility typically offers more flexibility, greater certainty, and a more transparent total cost than a bank overdraft, particularly once arrangement fees, renewal fees, and non-utilisation fees are factored in.
A bank overdraft remains useful as a small automatic buffer for unexpected account fluctuations. The two products can coexist: many businesses maintain a small bank overdraft for day-to-day account management while using a revolving credit facility for planned working capital needs.
multifi Flexi Credit: from £10,000 to £350,000, from 1.99% per month on drawn funds only, zero fees, decision in 24 hours.
Frequently asked questions
What is the difference between a revolving credit facility and a business overdraft?
A business overdraft is provided by your bank and attached to your business current account. It can be reduced or withdrawn at the bank's discretion and typically carries annual arrangement and renewal fees. A revolving credit facility is independent of your bank, has a fixed term, charges interest only on drawn funds, and cannot be unilaterally withdrawn. multifi Flexi Credit additionally charges zero fees of any kind.
Is a revolving credit facility cheaper than a bank overdraft?
It depends on usage. Business overdraft rates are typically lower on a monthly basis than revolving credit facilities, but overdrafts often carry arrangement fees, renewal fees, and non-utilisation fees that add to the total cost. For planned, regular use of working capital, calculate the total cost including all fees — not just the interest rate — before deciding.
Can I get a business overdraft without using my main bank?
No. Traditional business overdrafts are only available from the bank where you hold your business current account. multifi Flexi Credit is entirely independent of your bank — you do not need to change your banking arrangements and funds are paid directly to your existing account.