A revolving credit facility allows a business to draw down funding within a set limit, use it for business purposes and then repay it. This can then be repeated as and when the business needs the funds again, within a pre-agreed funding limit.
Lets look at the different types of revolving credit facilities available, how they work, what the costs/interest are and who the providers are.
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Revolving Credit Facility Explained
There are a number of specilist providers of revolving credit facilities in the UK, each with different criteria and fees.
When picking a provider, its important to consider what the funds are going to be used for, how long you need the money for and what security is available.
A revolving finance facility is best suited to short term lending requirements of 1-3 months, which are likely to be repeated again. For longer term business lending, a business loan may be more suitable.
If the purpose of the funding is to import goods or pay suppliers, then a trade finance facility may be more suitable.
The credit facility once set up can be used for a large number of business purposes, such as:
- Finance for buying stock
- Bridge short term cashflow gaps
- Pay suppliers
- Fund a large customer order
- Import goods and products
- Seasonal Cash-flow issues
Here are some of the key features of a revolving funding facility.
- Borrowing from £30,000 to £2,000,000
- Terms from 3m to 24m
- Draw Down and Repay Within 24h
- Secured or Unsecured
- Funders may require director guarantees and/or a Debenture
By providing a charge over a property, this could increase the available funding limit. We work with lenders that accept first and second charges over residential, commercial and semi-commercial properties.
Most lenders require at least one director to be a home owner.
Revolving Credit Facility Example
Lets look at a worked example of a credit facility with typical fees for Company ABC.
Facility Funding Limit: £200,000
Monthly Interest rate: 2%
Company ABC withdrawns £100,000 on day 1 of the month.
Available Funds: £100,000
Company ABC repays £50,000 at the end of the month. Interest for that month is charge at £2000.
End of Month Balance: £52,000
End of Month Available Funds: £148,000
In this example the business has incurred one months interest on £100,000 at 2%/m. This interest has been added to the balance at the end of the month and the repayment credited to the balance. This leaves them with a balance owed of £52,000 and funds available to withdraw of £148,000 when needed.
Revolving Credit Facility FAQ
Lets look at some frequently asked questions our clients have about a revolving credit facility for their business.
What is a revolving credit facility?
A revolving credit facility is a type of business loan or credit arrangement that provides comapnies with access to a predetermined amount of funds that can be borrowed, repaid, and borrowed again.
It is a flexible form of business credit that allows companies to use the funds as needed within the agreed credit limit. The borrower can make multiple drawdowns and repayments within the specified repayment period. Interest is typically charged only on the outstanding balance, and the credit limit replenishes as the borrower repays the borrowed funds.
How much does a revolving credit facility cost?
The cost of a revolving credit facility can vary depending on several factors such as the size of the facility, the creditworthiness of the business, and the security available. A typical monthly interest rate would be from 1% to 4% and most facilities have a one-off arrangement fee of 2 – 3%. Some providers also have non-utilisation fees.
Please get in touch with Bolton Business Finance to get an accurate and up-to-date cost estimate.
Apply For A Revolving Credit Facility
Please get in touch if you want to get a quote for a revolving credit facility for your business.
Fill in the form below and one of our team will be in touch straight away.