What is a revolving credit facility?
A revolving credit facility is a type of low-interest loan secured against your property that you can use to withdraw money, use the cash, repay it and then withdraw it again when you need it. It’s a very flexible funding solution on the alternative finance market.
As this is a line of credit, you will only pay interest on the actual funds that you draw, and you’ll have the peace of mind that the funds are reserved for draw-down should you need it.
You can use the money for home improvements, consolidating existing debts, property investment or funding a large one-off expense.
Revolving credit facility and term loans
With a revolving credit facility you can borrow money, pay it back, take it out again, and so on, for the agreed duration of the revolving credit facility’s term. Term loans, however, are different as they are traditional loans that give you access to funds that your business pays back, alongside interest, according to the fixed repayment schedule or contract.
Therefore, with a revolving facility, the lender specifies the maximum amount you can spend, but within that you have the option to decide how much you want to borrow and pay back every month. Your payment terms will set out how quickly you need to make repayments after withdrawing the funds.
How does a revolving credit facility work?
The best way to explain how revolving credit facilities work is to understand that they’re effectively a type of loan that can be automatically renewed. During the length or duration of the agreement, you can make several withdrawals and repayments whenever you need additional funding. You might use it regularly or just one or two times — depending on your business needs. No two business is the same and each will have their own requirements.
Also, interest rates are fixed and usually paid daily. You will need 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 anywhere between six months to two years. As long as you keep up with the repayments and everything is alright 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 access 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 you need funding to bridge short-term cash flow issues or supplement operating expenses, you can use the Funding Options platform to see what you might be eligible for.
Some companies use revolving credit to pay their employees’ salaries. Not necessarily all the time, but in instances where they require the additional funds until their business gets back on its feet again. Others use it to buy additional stock in order 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.