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What is a revolving credit facility for a UK company?

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Reviewed: 7th November 2019

Revolving credit facilities are similar in nature to bank overdrafts and credit cards. They allow you to draw down funds as and when your company needs them over the course of the arrangement. 

This type of credit facility can be used to pay expenses such as wages, rent, and utilities, as well as to make stock purchases and pay business taxes. Revolving credit is also particularly useful for companies that have seasonal cash requirements, or cash needs that aren’t predictable.

Revolving credit facilities for business

Revolving credit is a form of working capital finance that offers your company flexibility, and supports a programme for growth. Ongoing access to additional funds whenever you need them throughout the pre-agreed term eases pressure on cash flow, as there’s no need to apply for new loans.

Banks’ increasing reluctance to offer business overdrafts makes revolving credit a valuable alternative - specialist lenders can provide eligible UK companies a respite from their cash flow issues.   

How does a revolving credit facility work?

A revolving credit facility allows you to make multiple withdrawals and repayments during the length of the agreement. You draw down, pay back, and draw down again, as and when you need additional funding.   

The interest rate is fixed, and typically paid daily, which allows for better cash flow management. The lender decides on a credit limit, which is commonly the equivalent of one month’s turnover. This depends on a number of factors, however, including the strength of the business and previous credit history.

Some companies use this type of credit to make a large single purchase, whilst others might make use of the flexibility to support their day-to-day cash needs. Revolving credit facilities are also very useful in the event of unexpected bills, or other adverse events such as the loss of a key customer, as they provide a buffer against adverse cash flow.

Is your company eligible for revolving credit?

Although lenders’ criteria vary, key eligibility requirements for revolving credit are reliable cash flow and a strong business. Your company’s financial performance and credit record will be assessed, as will the value of any assets you hold.

You can mitigate the lender’s risk by providing a personal guarantee but it’s always worthwhile seeking professional advice before doing so, as a personal guarantee makes you liable for the full outstanding amount should your company be unable to repay.

Advantages and disadvantages of revolving credit

Advantages

  • Fixed interest rate for the duration of the facility
  • No charges for early repayment
  • Typically, you only pay interest on the money you’ve taken rather than on the entire credit limit, making cash flow more manageable
  • Applications are usually processed quickly, providing fast access to cash 
  • Highly flexible form of borrowing
  • As your business grows, you may be offered a higher credit limit by the lender
  • No long-term commitment

Disadvantages

  • Interest rates are typically higher for revolving credit than traditional loans
  • This type of facility tends to be offered over a year or two, so it may not be suitable if you’re looking for long-term funding
  • Lenders may require a personal guarantee before sanctioning the facility

Real Business Rescue can advise on the value of revolving credit for your business, and assess your eligibility. We have connections with alternative lenders throughout the UK, and can put you in touch with the most suitable providers.

Call one of our expert team to arrange a free same-day consultation – we operate an extensive network of offices around the country so you’re never far away from professional support.

Jonathan Munnery

Partner

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