Running a limited company in the UK means managing cash flow against a backdrop of delayed payments, quarterly VAT bills, and the occasional unexpected cost. For years, the business overdraft was the default safety net — but it is no longer the cheapest or most reliable option on the market. Here is a straightforward guide to the main alternatives, what they cost, and where each one fits.
Invoice Finance: Unlocking Cash Already Owed to You
If your company raises invoices with 30- to 90-day payment terms, you may be sitting on thousands of pounds of cash that is legally yours but not yet in your account. Invoice finance solves this by advancing a percentage of the invoice value — typically 80 to 95 per cent — within 24 hours of the invoice being raised.
There are two main variants. With invoice factoring, the lender takes over collections from your customers, which works well when you want to outsource credit control. Invoice discounting keeps collections in-house and is confidential, so your customers never know a third party is involved.
Costs vary by provider and sector, but you will generally pay a service charge of 0.5 to 1.5 per cent of turnover plus a discount charge on the funds drawn, broadly similar to an interest rate. For companies with a solid debtor book, invoice finance from a specialist lender like Credicorp can work out cheaper than an overdraft once you factor in arrangement and renewal fees.
If your business experiences seasonal peaks, consider pairing invoice finance with budgeting discipline — our guide on managing seasonal cash flow covers practical approaches.
Revolving Credit Facilities: Flexibility Without the Risk
A revolving credit facility works like an overdraft in that you draw down and repay as needed, but it is structured as a formal loan agreement rather than a bank-account feature. That distinction matters: unlike an overdraft, a revolving facility cannot usually be withdrawn without notice, giving you far greater planning certainty.
Interest accrues only on what you draw, and repaid funds immediately become available again up to your credit limit. This makes it well suited to businesses with lumpy costs — a retailer stocking up for Christmas, for example, or a contractor bridging the gap between project milestones.
"A revolving credit facility gives limited companies the on-demand flexibility of an overdraft without the legal risk of repayment being demanded overnight. For most SMEs, that stability is worth a small premium in rate." — Senior credit analyst, alternative lending sector
Rates on revolving facilities from alternative lenders tend to sit between 8 and 20 per cent APR depending on credit profile and trading history. You can compare revolving credit options at Credicorp to get an indication of what your business might qualify for.
Short-Term Business Loans: Predictable Repayments for Defined Costs
When you have a specific, time-limited need — replacing equipment, funding a marketing campaign, or bridging a VAT payment — a short-term loan is often the most cost-effective route. You borrow a fixed sum, agree a repayment schedule (typically three to 18 months), and know exactly what you owe each month.
Because the repayments are fixed, budgeting is straightforward. There are no revolving balances to monitor and no risk of drawing more than you intended. Many alternative lenders assess limited companies primarily on bank statement data and recent trading, rather than years of filed accounts, which suits younger businesses that may not meet high street bank criteria.
For context on what directors are responsible for when taking on company debt, the Companies House guidance on running a limited company is a useful starting point, as is the broader government business finance support directory.
Our overview of choosing the right business loan term can help you match loan length to the underlying purpose before you apply.
Choosing the Right Option
The best alternative to a business overdraft depends on what is driving the cash pressure. If it is slow-paying customers, invoice finance is the logical fit. If you need a permanent flexible buffer, a revolving facility offers stability. If you face a defined one-off cost, a short-term loan keeps things clean and predictable. In all cases, comparing rates and terms across multiple providers — rather than defaulting to your current bank — is likely to save your company money.