Cash is king. But what if, like 57% of UK based SMEs, you’re struggling with cash flow?
Depending on your specific needs, a revolving credit facility may be able to help. Here’s what you need to know about this alternative financing solution.
What is a revolving credit facility?
A revolving credit facility enables you to withdraw money, use it to fund your business, repay it and then withdraw it again when you need it. It’s a flexible form of funding that gives you access to a pre-approved line of credit, which you are able to use and repay on a recurring basis.
Revolving credit facilities are similar to business credit cards, except that you don’t use a card and instead the money is extended to you. This makes them helpful in circ*mstances such as paying employees or settling overdue accounts. They also tend to come with higher credit limits, making them a suitable option for cash flow management.
How does a revolving credit facility work?
If approved by a lender, you’ll be extended a line of credit which will either be deposited into your account or offered to you as a transfer facility or cheque. You then use the funds, repay the money including any possible interest, and borrow again when you’re ready to. You are charged interest on the amount you borrow, rather than the amount of credit extended to you.
The benefits of using a revolving credit facility
Flexible usage: Since you can use, repay, and reuse the loan as needed, a revolving credit facility offers a flexible way of funding surprise projects and paying off unexpected bills. This flexibility also means you don’t have to use the line of credit when you don’t need it.
Unsecured options: Most revolving credit facilities are offered as unsecured funding, meaning you don’t have to put up any assets as collateral.
Cash flow management: Payments to suppliers sometimes need to be made before invoices are cleared by clients. In cases like these, a revolving credit facility could help you manage cash flow.
A few drawbacks and risks to be aware of
Risk of falling into arrears: Missing a payment and falling into arrears can have a serious consequence on you and your business. Consider carefully how much credit you’d like to leverage and be careful not to overexert your business.
Variable interest: Revolving credit facilities often come with variable interest rates. While interest rates can go down, they can also go up.
Fees and penalties: Revolving credit facilities can come with fees. Be sure to read what you’re expected to pay in advance. Missed payments can also carry additional penalties.
Interest rates: Due to the short term nature of revolving credit facilities you may be charged higher interest rates than if you were taking out a more traditional fixed term loan.
Try our revolving credit facility and loan calculator
Use our business loan calculator below to find out how much you can borrow to take your business to the next level.
Calculations are indicative only and intended as a guide only. The figures calculated are not a statement of the actual repayments that will be charged on any actual loan and do not constitute a loan offer.
Show Loan breakdown
Per month
-
Avg. Monthly Interest
-
Total Interest
-
Length of loan
-
Total Cost of Loan
-
If you are satisfied with your results, you can proceed here
How to apply for a revolving credit facility
We may be able to help there. As a broker, we help connect borrowers to lenders offering between £1000 and £20M. Just submit your information here and we’ll see if we can find you any suitable lenders.
Whether you use our service or search for suitable lenders using another method, it’s important to find out what’s available to you and compare features. For example, one lender may offer a lower interest rate, but also a reduced line of credit, whereas another may offer more credit, but they might request a personal guarantee. Consider all the available options before making an informed decision.
Once you’ve found a suitable lender, gather together all your documents (a business plan, cash flow projections, and company information) and submit a formal application. Then, it’s just a case of waiting to hear the decision.
Don’t forget, your current financial provider may already offer this service, so it’s worth checking in with them to find out if they can extend a favourable solution to you.
Tips for managing your revolving credit facility
Credit score: Always make your repayments on time and in full to ensure your line of credit has a positive, rather than negative, impact on your credit score.
Careful borrowing: Only borrow what you can afford. Given the revolving nature of these finance options, you should be prepared to think strategically every time you dip into the funds.
Emergency fund: Keeping a company emergency fund will enable you to repay your loan with greater ease.
Budget: Great credit management starts with good preparation. Draw up a company budget, include what you expect to earn and plan to spend and see if there are any gaps you may need to fill. This will ensure you’re not surprised by any unexpected payments.
FAQs
Do I need to make a personal guarantee?
Maybe. Whether or not you need a personal guarantee will depend on you, your lender, and your business. You’re more likely to be asked for a guarantee if your business is new, has poor credit, or is considered high risk.
Looking for finance?
Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.
Are revolving credit facilities secured?
Secured loans are backed by some form of collateral or security, for example, a property can be used to gain access to a loan. Unsecured loans do not require collateral. Revolving credit facilities can come in either form. It’s up to you and your lender which one you choose to go for, however, generally, secured loans will come with lower interest rates.
Looking for finance?
Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.
What happens if I go over my credit limit?
Revolving credit facilities are different from credit cards as the funds are usually deposited into your account or you’re provided with some other form of non-card access to the funds. This makes going over your credit limit a little different. Usually, you can only exceed your limit if you’ve been provided with a soft limit. In this case, while the exact consequences of going over your limit will vary from lender to lender, you may be charged higher fees, see a negative impact on your credit score or that of your business, and you might see increased interest rates. Keep communication with your lender open so you’re as informed as possible.
Looking for finance?
Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.
What’s the difference between a revolving credit facility and a term loan?
With a term loan, credit is extended to you along with a payment schedule. You return the funds along with payment for any interest or fees and the loan is considered complete. On the other hand, with revolving credit facilities, the lender sets an overall limit and it’s up to you how much and how often you withdraw funds.
Looking for finance?
Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.
Apply for a revolving credit facility with Funding Options by Tide
Find out which options are available to you by leveraging our brokerage service. We connect eligible borrowers to our network of over 120 lenders offering everything from revolving credit facilities, to credit cards, to asset finance. Just click the link below and fill in your details to find out if you’re eligible for our service.
Apply for a revolving credit facility
Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.
It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.
Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circ*mstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.
