Revolving Credit Facilities
Like a bank overdraft, revolving credit facilities provide a useful source of pre-approved, short-term,
funds that are available when needed.
There is no need to bank with the lender and interest is only charged on amounts outstanding at any time. As the name suggests, the facility ‘revolves’ and once you’ve repaid a certain amount, you may be able to withdraw more. The term is typically between 6 months and 2 years, but the facility may be renewed at the end of this period.
Interest is charged on the amounts outstanding from time to time, and in some cases a commitment fee which is charged up front.
A revolving credit facility can be very useful for growing businesses that need access to short-term overdraft-style funds to cover short-term gaps in cashflow.
As with all borrowing, the maximum facility available will be based upon the financial strength of your business and any security you are able to offer. Businesses with strong regular cash flow may find a revolving credit facility available even if they are unable to obtain other forms of longer term credit.
Your business will go through one application process, and once the facility is set up, you can use it until the agreement is updated or renewed. They’re usually more sophisticated than a typical overdraft facility and many provide other benefits such as on-line dashboards and automated credit decisions.
Having a reserve of working capital will enable you to pay your suppliers on time, keeping them happy and allowing you to concentrate on fulfilling customer orders. Revolving credit facilities may be used alongside other funding types. Some 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 cashflow management.