What is a Revolving Credit Facility?
A revolving credit facility, or revolver, is a way for businesses to access short-term funds as and when needed. This flexible funding option allows the business to withdraw money up to a set limit. Once the credit is repaid, it can be used again. Revolvers can be useful for growing businesses that have to deal with unpredictable cash flow.
How Does Revolving Credit Work?
Here’s a quick overview:
Term and Repayment:
The term of a revolving credit facility is usually set between three months and two years. Depending on the lender’s policies, though, it may be possible to keep the credit line open for longer. Repayment schedules are usually daily, weekly, or monthly.
Interest Payments:
Revolvers generally have a fixed interest rate, and you’ll be charged per day of each withdrawal. This means you won’t pay interest for the entire amount of the credit facility. However, the interest rate is usually high compared to a term loan, and you may be charged more for late repayments.
Lender Requirements:
To set up a revolving credit facility, you’ll have to show your business’s credit history, turnover and other financial statements. This means it’s not suitable for brand-new businesses. The lender may ask you to provide a personal guarantor or to secure the loan facility using an asset, such as your home. If all the requirements are met, it’s very quick to set up a revolver and you may even be able to withdraw funds the same day.
How can I use a revolving credit facility?
Once your bank or other lender approves your revolving credit facility, you can use it for whatever your business needs. That might be a large purchase, such as new equipment or a vehicle. Or it might be day-to-day expenses like rent, wages and stock. So long as you keep your withdrawals within the overall limit, you can decide how to spend your credit without justifying it to the lender.
Who can be approved for revolving credit?
Revolving credit can be a real lifesaver if your cash flow is unpredictable, or you need funds to invest in growing your business. But the high interest and daily charges mean that you need to be confident of repaying the credit in good time. This is why revolvers are recommended for established businesses, rather than start-ups.
In this sense, it’s more like having a credit card or arranged overdraft than a conventional loan. You can dip into it as and when needed, but it’s best to pay back what you’ve borrowed quickly so you don’t amass a lot of interest payments.
Lenders need to be sure that you won’t default on repayments, so you’ll have to furnish a lot of financial information about your business when you apply for a revolver. Once you’ve established that you are trustworthy, the facility can be approved and you can use it for the entire term of the agreement. But it’s worth noting that if you don’t keep on top of payments, this can affect both your credit score and your eligibility for further loans, including an extension of your revolving credit facility.
Flexible Revolving Credit for Your Business
Need ongoing access to working capital without reapplying each time?
Revolving credit provides a flexible funding facility that allows your business to draw down funds as needed, repay, and reuse the facility, helping you manage cash flow gaps, seasonal fluctuations, or short-term opportunities.
At Wenham Specialist Finance, we arrange tailored revolving credit facilities structured around your turnover, trading profile and funding requirements.
Speak to our team today to explore a flexible solution that keeps capital available when you need it.