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Revolving credit facility

A revolving credit facility works in a similar way to an overdraft or a business credit card, allowing you to borrow money for your business as and when you need it. But how does it work and what’s involved? Read more in our guide.

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How does revolving credit work?

The easiest way to think of a revolving credit facility is as a loan that gets automatically renewed. Rather than borrowing a set amount and then paying it back over a certain period, a revolving credit facility gives you a credit limit which you can borrow and pay off as you go. In that respect, they’re similar to overdrafts or credit cards.

For example, say you take out a revolving facility with a credit limit of £3,000. You borrow £1,500 straight away to spend on some new stock, and then pay the amount off – plus interest – over a few months. Once you’ve paid that money off, you can then borrow up to the full £3,000 again if you need it.

What’s the eligibility criteria?

Revolving credit facilities are generally unsecured, meaning you won’t need to secure the loan against an asset of some kind. You may have to sign a personal guarantee, meaning you agree to be personally liable for the loan if your business isn’t able to keep up the repayments.

Whether you get approved will depend on the financial health of your business. If you’re business is profitable and you’re turning over a decent amount each month, you’ll likely to be successful. But the amount you can borrow will depend on your business’s financial performance.

How much does it cost?

The interest rates for revolving credit tend to be higher than traditional loans. This is because revolving credit is a form of short-term finance. The interest rate will be agreed with you before you take out the facility.

How long can I borrow for?

Revolving credit facilities usually last between six months to two years but, providing you’ve kept up with your payments, there’s a good chance you’ll be able to extend it for a longer period.

Do you offer revolving credit facilities?

The business loans and merchant cash advances we offer aren’t strictly revolving credit facilities, but most of the businesses we fund (84%) use them as such by renewing their loan after they’ve paid off a certain percentage.

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