01 / The mechanics
How it works
- A limit is agreed, and you draw against it only when you need to.
- Interest applies to the balance outstanding, so an unused facility costs little beyond its fees.
- Repaying restores the limit, which is what makes it suitable for recurring gaps.
- The limit is normally reviewed at least annually and can be reduced or withdrawn at that point.
02 / The trade-offs
Who it usually suits
Cash-flow timing gaps rather than a single purchase.
Where the cost sits
Interest on the drawn balance, an arrangement or renewal fee, and sometimes a fee on the undrawn part.
03 / Look closely
What to watch for
Facilities repayable on demand, non-usage fees, and annual review dates that can reduce the limit.
Questions worth asking
- Is the facility repayable on demand, and what notice would I get?
- What happens at review if trading has dipped?
- Is there a charge on the portion I do not use?
- Are there covenants, and what would breach them?
04 / Take a step back
Before you commit
For a single dated purchase, a term loan is usually cheaper and removes the risk of the limit being pulled.