Credit limit

Definition

A credit limit is the agreed maximum on a revolving facility such as an overdraft or a credit line. Unlike a fixed loan amount, the limit is a ceiling rather than a sum advanced in full — you draw what you need beneath it.

In plain terms

It is the top of the tank, not the fuel in it. With a facility like Creditcorp Flex, you can draw up to the limit, repay as cash comes in, and draw again — paying only for what you actually use. A limit can sometimes be raised as the business grows; see can I increase my credit facility limit.

In practice

For a UK limited company, the credit limit on a revolving facility usually gets set with reference to how the business actually trades — recent turnover, cash flow patterns and how the account has been run matter more than any single figure in isolation. A director opening a new facility should expect the initial limit to reflect the company's current trading position rather than its ambitions, with headroom to grow as trading history builds.

Because the limit is reusable rather than a one-off advance, the useful discipline is to treat it as working capital headroom, not a target to max out. A company that regularly draws close to its limit and repays quickly is using the facility as intended — smoothing timing gaps between costs going out and customers paying in — rather than relying on it as permanent finance.

How lenders read it

Lenders and their credit teams tend to look at how a limit is actually used over time, not just whether it exists. Consistent drawing and repaying, with the balance regularly returning towards zero, reads as healthy cash-flow management. A balance that sits permanently near the ceiling, with little repayment activity, tends to prompt closer review — it can signal the facility is plugging a more structural shortfall rather than a temporary one.

This is one reason a limit is not fixed forever: it can be reviewed as the relationship develops, and how the existing limit has been used is typically part of that conversation. Keeping the facility active but not permanently exhausted tends to keep future options — including a higher limit — open, consistent with the flexibility described for Creditcorp Flex.