Also known as a Flexi Loan

Give your business the flexibility it needs with A Revolving Cash Facility.

Revolving credit vs Credit cards

The biggest difference between a revolving credit facility and a credit card is that the pot of money is transferred directly into your business bank account rather than making purchases with a payment card. Just like an overdraft or cash advance. That said, some facilities come with a credit card attached to them.

Importantly, most revolving credit facilities have lower interest rates than credit cards.

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 Interest rates are fixed and are usually paid daily on withdrawn balances, enabling you to manage your cash flow effectively.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.

Eligibility and Fees

The financial strength of the business and any security offered will determine the maximum facility size that the lenders will offer. Typically the only security needed will be a director's personal guarantee. 

In some cases, there is a commitment fee for ‘right to access the facility, plus 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 between 6 months and 2 years — 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 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.

"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.