What-is-a-revolving-credit-facility-for-a-UK-company

Could a revolving credit facility help your company?

Revolving credit facilities share similarities with bank overdrafts and credit cards. They enable you to access funds whenever your company requires them throughout the agreement period.

This credit facility is versatile, serving purposes like covering expenses such as wages, rent, and utilities. It can also be utilised for stock purchases and settling business taxes. Revolving credit is especially beneficial for companies with seasonal cash demands or unpredictable cash needs.

 

Revolving credit facilities for business

Revolving credit, a type of working capital finance, provides your company with flexibility and facilitates a growth-oriented strategy. Continuous access to extra funds during the agreed term alleviates pressure on cash flow, eliminating the need for new loan applications.

Given the growing reluctance of banks to offer business overdrafts, revolving credit emerges as a valuable alternative. Specialist lenders can offer eligible UK companies relief from their cash flow challenges.

 

How does a revolving credit facility work?

A revolving credit facility enables multiple withdrawals and repayments throughout the agreement’s duration. You can draw down, repay, and draw down again as the need for additional funding arises.

The interest rate is fixed and typically paid daily, enhancing cash flow management. The lender sets a credit limit, often equivalent to one month’s turnover, based on factors like business strength and credit history.

Companies may use this credit for a significant single purchase or to support day-to-day cash needs. Revolving credit facilities prove invaluable during unexpected events, such as unexpected bills or the loss of a key customer, serving as a buffer against adverse cash flow.

 

Is your company eligible for revolving credit?

Lenders’ criteria may differ, but crucial prerequisites for qualifying for revolving credit include a dependable cash flow and a robust business. Your company’s financial performance and credit history, along with the value of any assets, will undergo evaluation.

To reduce the lender’s risk, offering a personal guarantee is an option. However, it’s advisable to seek professional advice before committing, as a personal guarantee renders you liable for the entire outstanding amount if your company faces challenges in repayment.

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Advantages and disadvantages of revolving credit

I. Advantages 

  • The interest rate remains fixed throughout the facility’s duration
  • No fees for early repayment
  • Interest payments typically apply only to the withdrawn amount, not the entire credit limit, enhancing cash flow management
  • Quick processing of applications, ensuring swift access to cash
  • Highly adaptable borrowing option
  • Potential for an increased credit limit as your business expands, subject to the lender’s approval
  • No extended commitment is required

 

II. Disadvantages

  • Revolving credit often incurs higher interest rates compared to traditional loans
  • Commonly provided for a duration of one or two years, making it less suitable for long-term funding needs
  • Lenders may mandate a personal guarantee as a prerequisite for approving the facility

 

Vanguard Insolvency can offer guidance on the viability of revolving credit for your business and evaluate your eligibility. With affiliations to alternative lenders across the UK, we can connect you with the most fitting providers.

Contact one of our skilled team members to schedule a complimentary same-day consultation. Our extensive network of offices across the country ensures you’re always close to professional support.

Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.