Working capital line of credit: how it works and what it costs

A working capital line of credit gives your UK limited company a borrowing limit to draw on when bills land before customers pay. You pay interest only on what you've drawn, so it suits short, uneven gaps rather than one-off purchases. Here's how it works, what it costs and how an iwoca Flexi-Loan compares.

Worth knowing: gaps like this are normal. 60% of UK small businesses have more money going out than coming in for at least half the year (iwoca research, April 2026, survey of 1,005 small business owners).

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What is a working capital line of credit?

A working capital line of credit gives your company an agreed borrowing limit to help cover day-to-day costs, such as stock, wages and supplier bills. It can bridge the gap between paying those bills and receiving customer payments.

To understand your business’s short-term financial position, see how to calculate working capital.

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How does a working capital line of credit work?

The lender agrees a limit. You draw what you need, pay interest on that amount only and repay when cash comes in. With a classic line of credit, what you repay becomes available to draw again.

1. The lender sets a limit. It's based on your company's turnover, bank statements and credit history.
2. You draw what the gap needs. That might be part of the limit or all of it.
3. You pay interest on the drawn balance. The unused part of the limit usually costs nothing, though some lenders charge a fee for it.
4. You repay when customers pay. Repaying sooner means less interest.
5. The limit is reviewed. Many lenders review a line of credit once a year and can reduce or close it, so don't treat it as permanent.

Not every product sold as "flexible" works this way. Some let you redraw repaid money straight away. Others, including the iwoca Flexi-Loan, ask you to apply for a top-up when you need more. Check which you're getting before you sign.

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How much does a working capital line of credit cost?

You pay interest on what you've drawn, plus any fees. Brokers quote typical UK interest of 7% to 25% a year on the drawn balance, plus an arrangement fee and sometimes a fee on the unused limit.

These are the typical ranges quoted by broker FundingLinks in October 2026. Your rate depends on your company's finances, the limit and whether the facility is secured.

iwoca prices differently. Flexi-Loan interest ranges from 1.0% to 5.7% per 30 days, charged on what you still owe. It's simple interest, so interest isn't charged on interest. Some offers include an upfront fee, and there's no fee for repaying early.

Because some lenders quote a yearly rate and iwoca quotes per 30 days, compare the total cost of borrowing in each offer, not the headline rates.

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Worked example: £12,000 drawn for seasonal stock

Drawing £12,000 of a £30,000 limit at an illustrative 3% per 30 days costs £360 in the first 30 days. Repaying half after one month and the rest after two costs £540 in total, against £2,340 if you kept to a 12-month schedule.

Say a wholesaler is offered £30,000 and draws £12,000 in October to buy stock for the busy season. They repay £6,000 when the first orders are paid, then the rest a month later. The rate is illustrative, chosen from inside iwoca's range. Your actual rate will be in your offer.

In this example, repaying early saves £1,800, and the £18,000 left undrawn costs nothing.

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How an iwoca Flexi-Loan compares with a line of credit

A Flexi-Loan is a business loan with flexible repayment options. You're offered a limit, draw what you need and pay interest only on what you owe. Unlike a classic line, repaid money doesn't automatically become available again; you apply to top up.

How the Flexi-Loan works for working capital:

• Borrow £1,000 to £1m, with terms up to five years. Draw any amount up to the limit you're offered.
• Pay interest only on what you owe. Interest is charged per 30 days on the outstanding balance.
• Repay early with no fee. Clear it as soon as customers pay and the interest stops.
• Top up when you need more. If you're eligible, you can ask to borrow again while you still have a balance.
• Get a quick answer. A decision is made within 24 hours, but it might be longer depending on the complexity of the request.
• Know what you're signing. Every new Flexi-Loan needs a personal guarantee from at least one director.

iwoca lends to UK limited companies. We've funded 100,000+ UK businesses, with £5bn+ in total UK funding.

A Flexi-Loan might not be the right fit if you want a facility you can redraw again and again without reapplying, or if you're funding a large asset that should be paid off over its working life.

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Do you need a personal guarantee or security?

You'll usually need a personal guarantee. Lenders often ask a director to guarantee an unsecured line of credit personally, and every new iwoca Flexi-Loan needs one from at least one director.

• A personal guarantee is a director's legal commitment to repay if the company can't. Read it carefully and take advice if you're unsure.
• An unsecured line of credit doesn't need business assets pledged, but it often has a lower limit and a higher rate.
• A secured line of credit uses assets like property, stock or invoices as security. You may borrow more, but the assets are at risk if the company can't repay.

At iwoca, not every director has to sign, but at least one does. It's worth knowing that before you apply.

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What can you use a working capital line of credit for?

A working capital line of credit fits gaps where the money is coming, just later than the bills: stock bought before a busy season, wages and materials while 30- to 60-day invoices clear, or a VAT bill that lands before customers pay.

• Seasonal stock. Buy ahead of the peak and repay as sales come in, as in the worked example above.
• Waiting on invoices. A contractor pays wages and materials weekly while clients pay on 30- to 60-day terms.
• Tax bills. A VAT or corporation tax payment falls due in a quiet month.

Recruitment firm Dovetail and Slate pays its staff weekly while clients pay on 30-day terms or longer. Founder Guy Walker used iwoca to bridge VAT, salaries and suppliers over the summer:

"Finance and cash flow have consistently been my greatest challenge. I look at the cash flow before I look at the balance sheet or the P&L. Every single night." — Guy Walker, founder, Dovetail and Slate

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How big should your limit be?

Size the limit to your largest expected gap, from a cash flow forecast, plus a buffer. Lenders base the limit on turnover and affordability; at iwoca a Flexi-Loan is typically up to one month's turnover.

1. Forecast the next few months. List when money comes in and when bills go out.
2. Find the lowest point. The biggest shortfall is the gap you're funding.
3. Add a buffer. Late payers and surprise costs make gaps bigger than planned.
4. Check you can repay it. The gap should close when customers pay. If it doesn't, read the section on when a line of credit is the wrong choice.

A bigger limit than you need isn't free everywhere. Some lenders charge a fee on the unused part.

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Line of credit, working capital loan or overdraft?

A line of credit suits gaps that come and go. A working capital loan suits a single, planned gap. An overdraft covers small dips, but the bank can withdraw it. Invoice finance suits companies waiting on large invoices.

Sources: invoice finance advance rates from the British Business Bank finance finder; overdraft repayment from the British Business Bank's guide to working capital finance.

An iwoca Flexi-Loan sits between the first two rows. You draw what you need from the amount you're offered, then repay it over a term, like a loan.

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When is a line of credit the wrong choice?

A line of credit is the wrong choice when the gap isn't temporary. If costs beat income most months, a line of credit delays the problem and adds interest. It also isn't the cheapest way to pay for equipment or other long-term purchases.

Think again if:

• Costs are higher than income most months, with no clear end in sight.
• You'd need to draw again just to make the repayments.
• The money is for an asset you'll use for years. Asset finance or a longer loan usually fits better.
• You're behind with HMRC or suppliers and don't yet know why.

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Working capital line of credit FAQs

Who can get a working capital line of credit?

Lenders will have their own criteria but they usually look at your company's turnover, bank statements, credit history and how long it has traded. iwoca lends to UK limited companies.

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How quickly can you get one?

It depends on the lender: banks can take weeks, while online lenders often decide faster. At iwoca, a decision is made within 24 hours, but it might be longer depending on the complexity of the request.

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Can a new limited company get one?

It's harder without trading history, because lenders have less to go on. Some lenders will look at newer companies on smaller limits.

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Does applying affect your credit score?

A full application usually runs a hard credit search, which shows on your company's credit file. Checking eligibility first, where a lender offers it, avoids several hard searches.

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Where can you get a working capital line of credit?

High street banks, online lenders and brokers all offer lines of credit or similar products. Compare the total cost, not the headline rate. To compare business line of credit providers, see our guide to choosing the best business line of credit.

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Can you repay early?

You usually can, but check for a fee. Some lines of credit charge for early repayment or for the unused limit. iwoca lets you repay a Flexi-Loan early at any time with no fee.