2 min read
Definition
The utilisation rate is the drawn balance divided by the facility limit. A revolving line sitting at 95% used behaves like a maxed-out overdraft.
In plain terms
Running a facility near its ceiling month after month tells a lender you have no headroom left — and can hurt your business credit profile.
Why it matters for your company
Keeping utilisation moderate preserves both liquidity and creditworthiness. If you are permanently near the limit, the facility is too small — review it. Compare the cost of raising it versus a term loan using the overdraft vs loan cost calculator.
In practice
Picture a UK limited company with a revolving facility it draws on to smooth out the gap between paying suppliers and collecting customer invoices. Early in the relationship the balance moves up and down as the cycle turns over, dipping back towards zero after a strong collections month. That rhythm — draw, repay, draw again — is what a facility is designed for.
The pattern to watch for is when the balance stops coming back down. If the company draws more each month than it repays, the utilisation rate creeps upward and stays there. A director reviewing management accounts should treat a facility that no longer breathes as a signal to look at the underlying cash cycle, not just the borrowing, before the position becomes harder to unwind.
How lenders read it
Lenders looking at a facility rarely study a single snapshot; they look at the trend across several review periods. A rate that fluctuates with the business cycle reads very differently from one that has ratcheted upward and plateaued near the ceiling, even if the two companies show the same figure on the day of review.
Persistent high utilisation alongside minimal repayment activity tends to prompt closer questions about affordability and headroom, because it suggests the facility is being used as permanent working capital rather than a flexible buffer. Reviewing trend, not just the current reading, alongside the undrawn facility position gives a fuller picture than the rate alone, and can inform whether a term loan is a better structural fit.
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Read →Funding for UK limited companies
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