Uses of a revolving credit facility
A revolving credit facility is exactly what the term suggests. You are allowed to revolve the credit limit. Withdraw money, pay it back and you can then use it again. It is a flexible way of using money. Essentially, there is a pre-agreed maximum amount and you can withdraw as much as you want, at any time, without any issues.
The flexibility it offers has made it one of the more popular loan products. It works as a simple line of credit as there are no fixed repayments. Businesses get a fixed maximum limit from the lender and they can use the money as and when they want, as many times as they want and pay it back whenever they are comfortable.
As must be clear to you, the biggest advantage of a revolving credit facility or peak debt facility, is inherent flexibility for businesses. It is a dependable source of money for businesses that can be used at any time they need cash.
A revolving credit facility offers a variety of benefits and it’s important to understand those benefits to make proper use of this resource. Here is a list of some of the major benefits:
1. Easily available cash resource
As discussed earlier, one of the biggest advantages of this facility is the easy availability of cash. As a business owner, you can access this credit line as and when you want as it is already approved and certified. It works differently from traditional loans and lines of credit where you need to apply and then wait for approval, whenever you need money. In this facility, you can get money anytime you want and use it for any reason. It’s a cash flow resource where you don’t need to follow a special procedure to access the funds.
2. Repayment is easy
One of the biggest concerns for businesses regarding a line of credit is the exorbitant repayment terms. Lenders always want their money back and they want it at the pre-agreed time. They don’t care about what happens to you.
A revolving credit facility is an open-ended fund that can be accessed at your own pace. You are also free to repay the money – whenever you feel comfortable. There is no need for you to put yourself into financial hardship. However, there is a maximum limit which means the resources are finite. You will need to keep making the repayments to be able to withdraw money from your revolving credit facility.
3. Save money on interest
Banks make money by charging interest on the amount of money they lend and most businesses think twice when it comes to interest rates on loans. The revolving credit facility is different in this regard. In the UK, such a facility is typically backed/secured by assets. Assets are used as a type of security by the banks and you can use security to lower the interest rates.
If you compare the interest rate on a typical RCF and an average credit card, the revolving credit facility will typically have a lower interest rate. In simple terms, it is an affordable cash flow resource that should be put to good use by businesses, as much as possible.
4. Cash flow resource
Most businesses struggle with cash flow. It could be due to a business dependent on seasonal sales or fluctuating sales. If you are in one such business, you will have periods where there is an inadequate amount of cash available to you.
In such instances, a revolving credit facility can be of great help. It gives you access to cash flow which means you shouldn’t have any cash flow problems during the lean season. A revolving credit facility allows you to borrow money for any purpose which should allow you to make all the required payments on time.
