Revolving Credit Facilities Explained

Written by Conrad Ford on March 6, 2019

Updated March 9, 2022

Man sorting out finance options for his business

Running a business is no easy feat and staying on top of your finances in an unpredictable economy can be much more difficult than anticipated. If you find yourself struggling financially, then being in the know as far as loans and facilities are concerned is a good idea.

There are a lot of options out there for people looking for short-term solutions to cash-flow issues, one of which is referred to as a revolving credit facility. While not suited to every small business, revolving credit facilities may well be the best solution to your problems, helping you out if you find yourself in a cash-flow rut.

What is a revolving credit facility?

A revolving credit facility provides small-business owners with funds when their cash flow is low, through the means of an agreed credit limit. Revolving credit facilities work in a similar way to a business overdraft – a lender looks at a business’s revenue and outgoings and provides them with an agreed credit limit, giving you the freedom to draw down and repay any loans or business costs that you may have, right up to this limit.

This credit facility is an unsecured loan, meaning that lenders will need to look at the amount of money your business brings in on average and consider how much they feel you are able to afford to borrow. With this in mind, a credit limit will be set, and you are free to withdraw this as you need, making it an ideal solution to those unexpected, pesky cyclical cash flow difficulties.

Ensure that you bear in mind that interest rates charged on revolving credit facilities are much higher than you would be paying back through a traditional business loan. If you are in urgent need of cash, consider whether taking out a traditional loan with a lower interest rate would be of better use to you. On the other hand, interest paid on revolving credit facilities is limited to only the funds that you actually draw down, meaning that you only pay for what you spend, but you have the freedom to borrow as far as your limit if you need to.

How do I know if I’m eligible to take out this line of credit?

Revolving credit facilities are actually much easier to secure than traditional business loans – as long as you can prove that your business is profitable. As far as eligibility is concerned, your business has to have been trading for at least three months, and you must be able to provide your lender with your business revenue information.

The amount that you will be able to borrow is dependent on your business itself – they will look at cash-flow, revenue and your business credit history. Having had credit in the past does not necessarily rule you out for additional credit, but you may be expected to provide additional information to your lender on this if it is the case.

Revolving Credit is beneficial for business owners as you only pay interest on the money that you actually use, rather than the full credit amount. You are able to take the funds as and when you need them, giving you that much-needed flexibility. If you aren’t using the facility, then you will not be subject to fees or interest. If you’re using the facility as it was intended to be used, you will actually pay a lot less than you would when paying back a traditional loan over a few years. Revolving Credit Facilities are intended to be used for a few months, rather than years.

How quickly will I be able to access the money?

Some providers can issue you with a decision within 24-hours, subject to credit checks and you’ll be able to access the money you have been granted within a few days. Naturally, this depends on the lender and the amount of money you are borrowing – larger amounts may involve more thorough credit and business checks.

Funds through revolving credit facilities can be released much more quickly than traditional business loans meaning that they are ideal for businesses who have an urgent need for money. While a traditional loan could take up to a week to have funds released, some lenders of revolving credit facilities can offer a release of funds on the same day as the application has been submitted.

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