Am I Eligible for a Revolving Credit Facility?

When it comes to business finance options, there’s no ‘one size fits all’.

Every industry has different demands and different factors which influence their cash flow, often with unexpected events happening at the least convenient times. One solution to managing your cash flow, without the time-consuming loan application process, is a revolving credit facility. But what is it, and is it the best financial solution for your business?

What is Revolving Credit?

A Revolving Credit Facility is a continuous line of credit which businesses can borrow and repay over a set period, without having the faff of reapplying every time. The amount you can borrow, and the repayment period, are set by your Lender. But essentially, it means your account stays open and as long as you’re making the repayments, you can borrow money as often or as little as you like. Making an RFC a great option for quick cash flow requirements.

Our ‘What is a Revolving Credit Facility’ can provide you with more information on this topic.

Is My Business Eligible for an RCF?

Similarly, to other loans, Lenders will review your financial history to get a clear understanding of the risk you pose. This will include your business and personal credit ratings. Ultimately, Lenders are looking for how much cash is moving in and out of your bank accounts. The more money you have coming in, the better position you’ll be in for an RCF.

Things to consider:

• You need to be trading for more than 3 months
• You can be a Sole Trader, Partnership or Limited Company

How Much Can I Borrow with an RCF?

A Lender tends to base how much you can borrow on one month’s turnover. With 3 months’ turnover, that’ll give them a strong average of how your business is performing. The total amount will also be dependent on the strength of your business idea and long-term plan, as well as the security offer you put forward.

If you choose to use your existing Lender, you might receive a better deal as you’ve already built a good relationship with them. But depending on your requirements, they may not be the right Lender for an RCF. This is when a Broker can step in and source the best terms for you.

Which Businesses are Best Suited to an RCF?

Again, this is influenced by the reasons why you’re applying for an RCF, as well as your long-term plans and current financial situation. A Broker can work with you to understand exactly what you need from your Lender, along with a realistic repayment plan.

Some examples of businesses that may benefit from a revolving credit facility include:

• Seasonal businesses: Businesses that experience seasonal fluctuations in revenue, such as retailers, may use a revolving credit facility to manage cash flow during slow periods and prepare for busy seasons.
• Service businesses: Service businesses, such as consulting firms or marketing agencies, may use a revolving credit facility to cover expenses between invoice payments from clients.
• Startups: Startups may use a revolving credit facility to cover initial expenses or to bridge the gap between funding rounds.
• Businesses with growth opportunities: Businesses that are expanding or investing in new products or services may use a revolving credit facility to finance these opportunities without having to take out a traditional term loan.
• Businesses with irregular revenue streams: Businesses that have irregular revenue streams, such as those in the creative or entertainment industries, may use a revolving credit facility to cover expenses during slower periods.

What if an RCF isn’t for me?

That’s ok. Sometimes an RCF isn’t the best financial option for a business. There are several other suitable solutions such as Hire Purchase, Asset Finance, Commercial Loans or Finance Leasing which our team can talk you through. To find out more, get in touch today.