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Revolving credit line (facility)

Quick facts

What is a revolving credit line?

A revolving credit line (facility) is a rolling agreement between you (the business) and a lender – in contrast to a fixed business loan. You can use it on an as-needed basis and pay it off when it’s convenient. You have a credit limit, in the same way you do with a business credit card or bank overdraft.

The amount borrowed from £1000 to £25m, depending on agreed credit limit and whether you offer any security. Term from 1 month to 20 years. The cost can be monthly interest plus possible set-up fee. These will vary according to lender, your business profile and security offered. 

Revolving credit is a type of working capital finance that enables you to borrow funds from a lender at some point in the future, up to a limit.

It’s rather like a flexible, open-ended loan. You pay monthly interest only on the amount you’ve used (drawn down)  you don’t pay anything until you actually start tapping into the line. Your payments might be irregular, because (unlike a loan) you are not being lent a lump sum of money and charged interest right away. 

Once you’ve repaid an amount of money, you can withdraw more  hence the term ‘revolving’. You can also think of revolving credit it as a type of loan that can be automatically renewed.

Why choose a revolving credit line?

Like loans, both revolving and non-revolving credit lines come in secured and unsecured versions. You can use revolving credit lines in combination with other types of finance, for example trade finance or supplier finance to help you manage supply chain funding.

The speed of obtaining funds (set up in hours, draw down immediately) makes this an attractive choice for businesses. Best suited for capital expansion or as a safeguard in the event of cash flow problems.

Pros and Cons of a revolving credit line

If you make regular, consistent payments on your revolving credit account, your lender might agree to increase your maximum credit limit  again, like a credit card or overdraft. In this sense it’s a dynamic product, compared to a non-revolving line of credit.

You would expect to pay higher fees than fixed term business loans  you’re paying for the convenience and flexibility.

Is it suitable for an SME?

For SME’s who want to access funds quickly and flexibly, a revolving credit is an excellent life line. This is allows your business vital increased liquidity to overcome cash-flow issues which can hamper opportunities.
A revolving credit line does not have set number of payments, you can access money as and when your business needs it, and the interest gets charged on amount borrowed until it is paid off. 
However, a secured line of credit is collaterised against business assets so you may forfeit assets, equity or other stipulated penalties as per terms agreed if debt is forfeited. If you default, the lender would have the right to claim and sell off collateral you put up against borrowing as a means of repayment. 
All businesses (except start-ups) benefit from a revolving credit line. Lenders may require a minimum turnover and trading history, and may value your assets if the facility is secured.

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