Revolving Credit Facilities
Revolving credit facilities are a great alternative to a traditional overdraft provided by the high street banks. The funder agrees a line of credit with the business which can be drawn down and repaid during the agreed term.
Interest is often charged for the funds drawn, for the time they are drawn and dependant on the lender there is little to no charge for funds which aren’t drawn. When you combine that with often no set-up fee involved, this type of facility will often work well for your business.
How does a revolving credit facility operate?
Revolving credit facilities are exactly that, they revolve. As opposed to a fixed business loan which runs for a term of say 3-5 years, a revolving facility is often a rolling agreement with the initial term either 12 or 24 months, with some facilities being structured on an ongoing rolling basis similar to that of a credit card.
A Personal Guarantee will be required by the Lender, so home ownership is almost always a requirement. For example, a Lender will often apply a 2:1 equity ratio. This means if you are looking for £40,000, the Lender will need to see equity in your personal assets of £80,000.
Another factor will be the amount of the facility as a proportion of your
business. Typically, a Lender will offer a limit of either one month`s revenue, or the average turnover of the last three months.