What’s A Revolving Credit Facility And How Can It Help Your Business?

For every business, having a little bit of extra cash flow or additional funds in reserve for emergencies is essential. In the past, many businesses would resort to a bank overdraft to borrow the little bit extra that they need. However, as bank overdrafts become costlier and with less availability especially for smaller businesses, people need to look elsewhere for an alternative financial solution, such as a revolving credit facility.

What Is A Revolving Credit Facility?

As a type of working capital finance, a revolving credit facility is similar to an overdraft as you can access a set amount of pre-approved funds. You can access the funds you require as and when it is needed. As the name suggests, therevolving credit facility is a rolling agreement rather than a one-off financial product such as a business loan.

Organisations can withdraw the amount they need from their agreed credit store and pay interest on the amount they take out. Usually, your financial provider will set payment terms by which you need to repay the amount you have taken. You can then withdraw funds from the facility again once you have paid an agreed amount of money back into the facility. Not only providers will require you to pay off the full balance before you can withdraw again.

Usually, revolving credit facilities are incredibly simple to use, working as a business loan that renews continually. This makes it ideal for short-term cash flow issues or when there is a regular, routine fluctuation in incoming and outgoing payments. Often, the credit facility provider will issue you with a card with a credit limit for complete ease of use.

Who Can Access A Revolving Credit Facility?

Providers will usually assess your business and its financial strength before providing the card. However, typically, only a personal guarantee from the director of the company is required as security for the facility. Many lenders will support new businesses, but may not accept firms who have been trading less than three months.

Some providers will issue a revolving credit facility free of charge, with just the interest to pay for any amount you withdraw. However, some providers may require a commitment fee in order for you to access the funds. Don’t discredit the providers that ask for a commitment fee as they may have better interest rates which could prove to be more economical in the long run.

How Much Can I Borrow With A Revolving Credit Facility?

While different lenders will vary on how much they are prepared to lend, it is usually calculated around one month’s revenue. However, if you regularly use the credit facility and pay it back promptly, then the lender may increase your limit.

Usually, the term to pay funds back is between six months and two years, but it is often best to pay it back as quickly as possible to reduce incurring high interest fees. As a revolving credit facility is considered a short-term solution and is incredibly flexible, the interest charges are typically high compared to fixed-termloans.

How Can A Revolving Credit Facility Help My Business?

  1. Flexibility

A credit facility removes the burden of having to meet the set monthly payment. If you have funds available, you can pay the balance off whereas if the month has been slow trading, then you can pay just the minimum amount.

  1. On Demand

Once you have a revolving credit facility, you do not need to apply every time you require funds. Simply access and go, which keeps the business running smoothly.

  1. Credit Score

A revolving credit facility can help to improve your credit score on your company credit report; this could prove invaluable if you require a bigger loan in the future.

  1. Multipurpose

Typically a lender will ask for the use of a business loan, however, with a credit facility, you can use the funds on a range of different products that help to grow your successful business.

Looking For A Revolving Credit Facility?

Funding Bay can help your company to find the ideal business finance solution based on your needs and situation. Find out more about the best credit facilities available by filling out our quick contact form.

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