Revolving Credit Facility
A revolving credit facility, or Flexi Loan, provides you and your SME business with flexible access to pre-approved funds, similar to an overdraft. This allows you to draw on a line of credit as needed, ensuring cash availability for operational demands without repeated loan applications. It’s a convenient tool for managing cash flow, offering on-demand access to funds.
- Interest Only on Withdrawals: Pay interest only on the cash advance you use rather than the borrowed amount.
- Alternative to Business Overdrafts: A modern solution as traditional overdrafts become less available and can damage credit scores.
- On-Demand Access: Dip into a pre-approved pot of money whenever needed.
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What is a Revolving Credit Facility?
A revolving credit facility is especially beneficial for businesses that experience significant fluctuations in cash flow and may face unexpected large expenses. This type of credit is crucial for companies that sometimes operate with low cash reserves, as it helps them meet their net working capital requirements.
Typically regarded as a form of short-term financing, a revolving credit arrangement is often used for quick repayment.
When a company applies for a revolving credit facility, banks evaluate several key factors to determine the company’s creditworthiness. These factors include the income statement, cash flow statement, and balance sheet.
Advantages of Revolving Credit Facility
for Your Business
Flexibility
Revolving credit facilities can offer a flexible funding option and can be beneficial for businesses seeking flexible finance whenever necessary. Simply pay for what you use.
Pay for what you use
With revolving credit, interest is incurred only on the amount you utilise for your business needs. You are charged only for the duration that you have borrowed funds, unlike term loans where interest is calculated on the full credit amount.
Speed of access
Requests for revolving credit are typically processed rapidly thanks to the approval software that we use. You can obtain the necessary funds on the same day you submit your application.
"Can be used alongside other forms of finance."
Many businesses also take advantage of trade finance or supply chain finance to help them manage supply chain funding. These funding types can be used for specific orders or projects, while the revolving credit facility can be used for more general business cash flow management.
Revolving Credit Facility vs Credit Cards
Revolving credit facilities are different from traditional credit cards as the funds are typically deposited directly into your business’s account or made accessible through an alternative method instead of a card.
This distinction affects how exceeding your credit limit is managed, as the structure and accessibility of the funds can influence repayment and usage.
How do Revolving Credit Facilities work?
An auto-renewing loan is the simplest way to explain revolving credit facilities. During the length of the agreement, you can make numerous withdrawals and repayments whenever you need additional funding. You might use it regularly or just one or two times — no business is the same and it’s up to you.
Revolving credit facilities are similar to old-fashioned bank overdrafts, but many have benefits like online dashboards and automated credit decisions, which means they’re usually more sophisticated options. Interest rates are fixed and are usually paid daily on withdrawn balances, enabling you to manage your cash flow effectively. The limit that you can withdraw is likely to be the equivalent of one month of turnover for your business. The lender will also take your business credit history and financials into account when making a decision.
Revolving credit facilities are almost always used for the short term. Generally, they last from between six months to two years. As long as you keep up with the repayments and everything is okay in the eyes of the lender, you may be able to extend it.
What can I use a Revolving Credit Facility for?
While some businesses use a revolving credit facility to make a one-off large purchase, others dip into it when they need to supplement their everyday cash flow.
They can be used for things like emergency repairs, bills, or to cover the cost of unforeseen circumstances. Whether your business needs funding to bridge short-term cash flow issues or supplement operating expenses, Winchester Corporate Finance will be able to find the most suitable product for your business.
Some companies use revolving credit to pay their employees’ salaries. Especially seasonal businesses who have instances where they require additional funds during the quiet season. Others use it to order large amounts of stock to obtain discounts or simply because their business is growing and they need the extra inventory.
One of the benefits of a revolving credit facility is that approval rates are relatively quick.
Considerations for a Revolving Credit Facility
You might have to provide a personal guarantee as security for the finance of a revolving credit facility to be granted. By offering a personal guarantee, you are agreeing that if your business can’t make the repayments, you become personally liable for paying off the debt.
Unsecured loans tend to have higher interest rates than secured business loans. Winchester Corporate Finance will talk you through the process giving you full transparency of any interest rates or fees that the lenders might
charge for setting up the revolving credit facility, or some lenders might increase the interest charged when late payments are made. As with any type of business finance, it’s important to budget effectively to ensure that your business isn’t spending more than it can afford.
Revolving Credit Facility Eligibility and Fees
The financial strength of the business and the monthly turnover will determine the maximum facility size that the lenders will offer. Typically the only security needed will be a director’s guarantee. The only fee is the standard ongoing monthly interest charged on the funds drawn down at any one time.
Revolving credit facilities tend to have higher fees than fixed-term loans owing to their convenience and flexibility. The term will also likely be limited to around 12 months but then renewed; however, if all goes well, a lender will typically offer a renewal at the end of the term.
The amount a lender will look to offer is typically calculated as one month’s revenue, however in the case of strong businesses or repeat customers they may offer a top-up or an increase in the limit after just a few months. As they tend to be short-term arrangements, revolving credit facilities are often available to businesses in any sector that would otherwise struggle to find credit.
The main concern for the lender is the amount of regular cash flow through the account. Generally, if the amount being advanced is smaller they will often look at just the business bank account, and will often be able to support newly established companies that have been trading for more than 3 months. Fortunately, you may still be able to get a revolving credit facility without the best personal or business credit history. The lender may ask for additional information and in some cases, a personal guarantee.
Why Winchester Corporate Finance?
Since 2018, Winchester has invested over £100 million in funding for small businesses. When applying for your next business loan, you can trust the expertise of our experienced, honest, and transparent advisors to guide you through the process.
Growth: Our sourcing process provides you with a clear picture of what your lending options are
Family First: Peace of mind that we will look after you and your business by building a trusting relationship through sharing knowledge and full process transparency.
Integrity: We will continue to search for funding until we find the most suitable finance option for your business.
With Winchester, you can count on a seamless and stress-free experience from start to finish. So why wait? Apply Today!
Frequently Asked Questions
Can revolving credit be used alongside other loans?
Revolving credit can be used in conjunction with other loans. This type of credit offers flexibility, making it an effective tool for managing cash flow or addressing short-term expenses.
What can a revolving credit facility loan be used for?
A revolving credit loan can be used for a range of unexpected bills, large purchases required for your business and cash flow to help with the management of the company in an urgent cash flow management situation.
What is revolving credit also known as?
Revolving credit is also known as operating line, bank line or sometimes as a flex-loan.
