Business Revolving Credit Facilities 2018-03-25T12:27:49+00:00

Business Revolving Credit Facilities

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What is A Business Revolving Credit Facility?

Revolving credit facilities are flexible lines of credit, designed for small and medium-sized businesses. They provide working capital finance to the business, easing any pressure on cash flow.

Although there are now specialist lenders offering bespoke facilities, historically, the main type of revolving credit used by business owners was the overdraft. With overdrafts now more difficult to secure than they once were, more and more business owners are turning to flexible lines of credit through alternative sources.

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How Do They Work?

Revolving credit, as the name suggests, is not a static loan like a standard business loan. They operate in a similar way to an overdraft or credit card, in so much as you may borrow some money, repay it, and then draw it back down as and when you need it.

You will usually have a pre-agreed funding limit, which is determined by the strength of your business and its ability to repay the debt, once drawn down.

Interest is usually charged on a daily basis, depending on how much money is outstanding on that day. That means you only pay for the money as you use it. Revolving credit facilities usually come with no long-term commitment, meaning you can use it just once, to cover a blip, or regularly as part of running your business.

Will I Qualify?

Specialist revolving credit can be much easier to a secure than other types of business loan, and far easier than an overdraft from a major bank.

If your business is profitable and has been trading for three months or more, then you would theoretically be eligible for some level of revolving credit. Of course, a full assessment of the business would be required to guarantee funding.

The amount that you’re able to borrow will depend on the strength of the business, the turnover, cash flow and the credit history of the business and owners. Previous adverse credit doesn’t mean you definitely can’t secure a business revolving credit facility, but further information would be needed.

How Quickly Can I Access The Funds?

We are often able to get a credit-backed decision for customers within 24 hours of your application. The finance will usually be complete, and funds drawn down into your bank account within 2-3 working days, where your application is successful.

For some sectors, and with certain lenders, credit decisions can be almost instant, and funds are drawn down on the day of application.

The Pros & Cons Of Revolving Credit Facilities

Pros

  • Revolving credit is a highly flexible form of funding, unlike a business loan, you only take the money when you need it and can repay and draw back down as often as you like.
  • Only pay interest when you use the money, rather than for the life of the facility. Unlike other forms of credit, you only take the funds as you need them. When you aren’t utilising the facility, you don’t have to pay any interest.
  • The facility can grow with your business. If your business continues to expand and your account is well conducted, there is a good chance that the lender will extend your facility, allowing you to draw down more money.
  • Funds can be drawn down very quickly, sometimes even on the day of application. Traditional business loans usually take around five days to complete, and asset-backed loans much longer.
  • There is no long-term commitment, funds can be drawn down only once if needed and the facility never used again.

Cons

  • The interest rates charged on revolving credit facilities are higher than those charged on traditional business loans. Although this is somewhat offset by the fact that you only pay interest on the funds when they’re drawn down.
  • If you’re likely to draw down most of the funds in your facility and not repay them, the interest charged is likely to be higher than with other products.
  • Revolving credit facilities usually run for 1-2 years at a time, although they are often renewed if well conducted. If you’re looking for longer-term funding, another type of commercial finance may be right for you.

Getting Started

To get started, talk through your requirements with one of our commercial finance experts and they will be able to assess your eligibility. We will also confirm whether revolving credit is the best solution for your business, and if it is, we can get started with your application straight away.

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