Overdraft vs Revolving Credit vs Term Loan: Which Facility Fits Which Cash-Flow Gap
Overdraft vs revolving credit vs term loan
Reviewed by
Genfin funding specialists
Published 20 October 2026
Last reviewed 20 October 2026
This article is general information and not legal or financial advice
Most cash-flow problems in a healthy business aren’t a shortage of money. They’re a timing problem: the money is coming, just not before the wages, the supplier or SARS need paying. Which facility you use to bridge that gap matters as much as whether you bridge it at all. Choose the wrong one and a short squeeze turns into a long, expensive habit.
This article compares the three facilities South African SMEs are most often offered (a business overdraft, a revolving credit facility and a term loan), explains how each one works and what it costs, and matches each to the cash-flow gap it’s built for. For the wider picture of every funding type available, start with our business funding guide for South African SMEs.
The short answer: match the facility to the gap
Cash-flow gap | Typical length | Best fit | Why |
Short, unpredictable dips (a client pays a week late, a once-off repair) | Days to a few weeks | Overdraft | You pay interest only on what you use, and the balance clears as money comes in. |
Recurring cycles (buying stock before it sells, debtors on 60–90 day terms) | Repeats monthly or seasonally | Revolving credit | Fixed instalments, with the option to redraw what you’ve repaid for the next cycle. |
A one-off opportunity with a clear payback (new contract, bulk stock, equipment) | A few months to a few years | Term loan | A lump sum with a fixed end date, repaid from the income it creates. |
Ongoing losses (costs regularly exceed income) | Open-ended | None of these | This is a profitability problem. Debt makes it bigger, not smaller. |
The rest of this article explains the reasoning behind each row.
Start with the gap, not the product
Before comparing facilities, name the gap you’re trying to close. Our cash flow management guide sets out four that most businesses run into:
- The receivables gap: you’ve done the work and invoiced, but clients pay in 60 or 90 days instead of 30.
- The inventory gap: cash is tied up in stock or raw materials between buying and selling.
- The seasonality gap: revenue swings through the year while rent, salaries and instalments stay flat.
- The growth gap: a new contract, branch or product line needs spending before it starts earning.
Two questions then do most of the work. How long will the gap last? And what, specifically, will close it? A gap that closes when a known invoice is paid is very different from one that closes “when trading picks up”. If you’re unsure how the two ideas relate, working capital vs cash flow is a useful primer.
What is a business overdraft?
A business overdraft is a credit limit attached to your business current account. When your balance drops below zero, the bank covers the shortfall up to the agreed limit, and every deposit into the account reduces what you owe.
How an overdraft works and what it costs
You pay interest only on the amount you’ve used, for the days you’ve used it, usually at a rate linked to the prime lending rate. There’s normally no fixed instalment: the facility is repaid as money flows into the account. Banks typically add an initiation fee and a monthly service fee. Standard Bank, for example, lists a once-off initiation fee of 1.26% of the approved limit and a R69 monthly service fee on its business overdraft.
Because overdraft rates track prime, they move with the Reserve Bank. In September 2026 the SARB raised the repo rate by 0.25 percentage points to 7.25%, taking prime from 10.50% to 10.75% (IOL). Every rand of overdraft you carry now costs more than it did a month ago.
When an overdraft fits
- Short dips that correct themselves within days or weeks.
- Timing mismatches around payroll, supplier runs or month-end.
- A safety net you hope not to use, arranged before you need it.
Overdraft watch-outs
- It can be withdrawn.
Standard Bank describes its business overdraft as “payable on demand and reviewed every year”. Most bank overdrafts work the same way, which means the limit can be cut at the moment you rely on it most. - It tends to become permanent.
If the account never returns to positive, the overdraft has quietly turned into long-term debt at a variable rate. - It’s the wrong tool for assets.
Paying for a vehicle or machine from an overdraft ties up your safety net for years. - It keeps you with one bank.
An overdraft sits on a current account at the same bank, which limits how easily you can shop around on price.
What is a revolving credit facility?
A revolving credit facility, often called a revolving loan, gives you an approved limit that you draw down, repay in regular instalments and then draw again once part of it has been repaid. Think of it as a loan that refills.
How revolving credit works and what it costs
Unlike an overdraft, revolving credit usually comes with a fixed instalment, which makes it easier to budget for, and it isn’t tied to day-to-day movements on your current account. Redraw rules vary by lender. FNB’s business revolving loan, for example, lets you access funds again once 15% of the loan has been repaid. Interest is charged on the outstanding balance, so paying down faster lowers the cost.
When revolving credit fits
- Stock cycles that repeat: buy, sell, restock.
- Debtor books with predictable 60–90 day payment terms.
- Businesses that face similar-sized gaps several times a year.
Revolving credit watch-outs
- Revolving can mean never-ending. Because you can redraw, it’s easy to sit at your limit indefinitely. Decide in advance at which point in the cycle the balance should come down.
- Bank versions usually need more paperwork. FNB, for instance, lists signed financial statements, year-to-date management accounts, cash flow projections and possibly a personal surety for its revolving loan.
- Read the redraw rules. Know how much must be repaid before you can draw again, and whether redrawing changes your instalment or term.
What is a term loan?
A term loan is a lump sum repaid in fixed instalments over an agreed period, from a few months to several years. Once it’s repaid, the facility ends. Our business loan guide covers how term loans are priced, assessed and compared in detail.
How a term loan works and what it costs
Short-term business loans typically run for up to 12 months, while longer bank term loans can stretch over several years. Cost depends heavily on how interest is calculated. A loan charged on a reducing balance costs less than one charged at a flat rate on the original amount, even when the headline rate looks identical. How business loan interest rates work in South Africa walks through a worked example.
When a term loan fits
- A signed contract or purchase order that needs upfront spend. See purchase order and tender funding for how lenders assess these.
- A bulk stock purchase at a discount that sells through in a known period.
- Equipment, a fit-out or a move to bigger premises.
- Consolidating more expensive short-term debt into one instalment.
Term loan watch-outs
- Instalments start straight away. Model them against your cash flow before signing, not after. A cash flow forecast does this in an afternoon.
- Match the term to the payback. A three-year loan for a 90-day gap means paying interest long after the benefit has gone. A six-month loan for a three-year asset squeezes your cash flow.
- Check early settlement terms. Some lenders charge to settle early; others don’t. It matters if the gap closes sooner than expected. More in settling a business loan early.
Overdraft vs revolving credit vs term loan: side-by-side
Feature | Overdraft | Revolving credit | Term loan |
How do you get the money | Draw as needed from your current account, up to a limit | Draw up to a limit; redraw once part is repaid | One lump sum paid out upfront |
How you repay | As deposits come in; usually no fixed instalment | Fixed regular instalments | Fixed instalments over a set term |
Interest | On the balance used, usually linked to prime | On the outstanding balance | Fixed or variable; reducing balance or flat rate, depending on the lender |
Can the lender withdraw it? | Yes. Usually payable on demand and reviewed annually | Not while you meet the terms | Not while you meet the terms |
How long it lasts | Open-ended, reviewed yearly | Open-ended or multi-year | A fixed term with an end date |
Best for | Short, unpredictable dips | Recurring, predictable cycles | One-off needs with a clear payback |
Biggest risk | Becoming permanent debt at a variable rate | Staying at the limit indefinitely | Instalments outlasting the benefit |
Terms vary by lender. Always compare the total rand cost of credit over the period you’ll use the money, not the headline rate.
Five common cash-flow gaps and the facility that fits each
1. Your biggest client pays in 90 days, not 30
A contractor invoices R600 000 at month-end, but the client pays on 90-day terms and wages can’t wait. If this happens every month, revolving credit fits: draw when you invoice, repay when the client pays, redraw for the next cycle. If it’s a once-off delay, an overdraft or a short-term loan with no early settlement penalty will do. Longer term, work on the debtor book itself. Late payment is widespread in South Africa: National Treasury data for the second quarter of 2025 showed 95 399 government invoices unpaid after 30 days, worth R12.4 billion (Business Partners).
2. You’re building stock for peak season
A retailer buys stock in September to sell through December. The gap has a known start, a known end and comes back every year. A term loan sized to the stock purchase and timed to end after the season works well, and revolving credit suits a business with more than one peak a year. Seasonal cash flow planning covers how to map the build-up.
3. You’ve won a contract that needs spending before it pays
A logistics firm wins a 12-month contract but must hire drivers and put more vehicles on the road first. This is a growth gap with a defined payback, which is exactly what a term loan is for. An overdraft is risky here: if the bank reviews the limit mid-contract, the business is exposed. Our business growth strategies guide covers funding growth without straining cash flow, and you can see how Genfin funds logistics and transport businesses.
4. An unexpected bill lands this month
A compressor fails, or a SARS assessment comes in higher than planned. If normal trading will recover the amount within a few weeks, an existing overdraft is usually the cheapest fix. If you don’t have one, a short-term loan with a quick decision and no early settlement penalty lets you repay as soon as cash allows, so you only pay interest for as long as you need the money.
5. You’re short every month, whatever you do
If costs regularly exceed income, no facility closes the gap. It only postpones it, with interest added. The fix is margin, pricing or cost, not credit. Start with how to make more profit in your business, and check the five warning signs of a cash flow problem.
Where Genfin's funding fits
Genfin’s short-term business loan sits between a term loan and revolving credit. You receive a lump sum and repay it over 12 months, like a term loan. But interest is charged only on the outstanding balance, you can deposit surplus cash to reduce what you owe, and you can redraw any amount paid in above your normal instalments without reapplying, which gives it much of the flexibility of revolving credit.
- Unsecured funding from R100 000 to R3 million for registered businesses with at least 12 months of trading history and annual turnover above R1 million.
- No property or equipment is pledged. A cession of book debts is taken.
- 12-month term, repaid by weekly or monthly debit order.
- Interest on the outstanding balance only, with no initiation, admin or early settlement fees, so repaying ahead of schedule shortens how long the obligation runs.
- Redraws are available as long as your instalments are up to date. Deposit an extra R200 000 on top of your instalment and you can draw back up to R200 000. A redraw doesn’t change your instalment or term; only the interest moves, because it’s charged on the outstanding balance.
- A decision in as little as 24 hours, with funds paid out within 24 hours of signing.
- The option to refinance once 50% of the capital has been repaid.
It’s built for the receivables, inventory, seasonal and growth gaps above. It isn’t a replacement for an overdraft you dip into for a few days at a time, and it isn’t a multi-year asset loan. If you’re weighing a bank facility against a specialist lender, bank loan vs alternative lender sets out the trade-offs, and how Genfin’s funding works covers the requirements.
How to choose in four questions
- How long will the gap last? Days or weeks points to an overdraft. A recurring cycle points to revolving credit. A defined period with an end date points to a term loan.
- What will close it? Name the invoice, contract or season. If you can’t, fix that before borrowing.
- What will it cost in rands? Compare the total cost of credit over the time you’ll actually use the money, including fees.
- What happens if the lender changes its mind? If losing the facility halfway through would hurt, avoid one that’s payable on demand.
If your answers point towards funding, our companion article on five signs your business needs funding, and what to fix before you apply covers how to get application-ready.
Frequently asked questions
What is the difference between an overdraft and revolving credit?
An overdraft is a limit on your business current account that you repay as deposits come in, with no fixed instalment, and the bank can usually reduce or call it in at any time. Revolving credit is a separate facility with fixed instalments; once you have repaid part of it, you can draw that amount again. Revolving credit is more predictable, while an overdraft is more flexible day to day.
Is an overdraft cheaper than a term loan?
Often, for short periods, because you only pay interest on the amount you use for the days you use it. Over several months, a permanently drawn overdraft can cost as much as a term loan or more, and its rate rises whenever prime goes up. Compare the total rand cost over the period you will actually need the money, including fees.
Is a revolving credit facility the same as a line of credit?
Broadly, yes. A line of credit, a revolving loan and a revolving credit facility all describe a limit you can draw, repay and draw again. What differs between lenders is the redraw rules, the instalment structure and how interest is charged, so read those terms closely.
Can my business have an overdraft and a term loan at the same time?
Yes, and many businesses do: the overdraft covers short day-to-day dips and the term loan funds a specific project or purchase. Lenders look at your total repayments against your turnover, so factor both into affordability before you apply. How much business loan can you get in South Africa explains how lenders size this.
Which facility is best for paying suppliers upfront on a new contract?
Usually a term loan or short-term business loan. The need is one-off, and the contract income gives the loan a clear repayment source and end date. An overdraft is riskier here because the bank can review or reduce the limit before the contract pays out.
How does a repo rate increase affect my business facility?
Prime-linked facilities, which include most bank overdrafts, become more expensive as soon as prime moves. The Reserve Bank raised the repo rate to 7.25% in September 2026, taking prime to 10.75%. A fixed-rate term loan is not affected once signed, so check which rate your facility follows.
Find the facility that fits your gap
If you’ve identified a receivables, stock, seasonal or growth gap and want to know what your business qualifies for, apply online in a few minutes, or read our frequently asked questions first.
Trading for 12 months or more, with turnover above R1 million?
Genfin offers unsecured business funding from R100 000 to R3 million, with a decision in as little as 24 hours and no early settlement fees. Start your free application and see what your business qualifies for.
About GENFIN
GENFIN is a South African business finance provider founded in 2016 and backed by the GENFIN SA group, with RMB, Sanlam Investments, Ashburton Investments and STANLIB among its investors. Since inception GENFIN has assessed more than 81 000 funding applications and disbursed over R2.5 billion to South African SMEs and mid-corporates. More about the team.