What is a Revolving Cash Facility (Line of Credit)?
Posted on 26th April 2021 at 10:59
A Revolving Cash Facility enables you to withdraw money when you need it to fund your business, and to repay it whenever you want to.
Why a Revolving Cash Facility could be the right choice for your business...
This type of credit can be used to pay expenses such as wages, rent, make stock purchases and utilities. It is also very useful for companies that have cash needs that aren't predictable, which offers your business flexibility and easing cashflow. Interest is calculated daily and only charged on the amount you are currently using, making it easier to manage your cashflow.
How it works
Let's say you take out a revolving facility that has a credit limit of £10,000, you can drawdown as much as you like at any time and will only have to pay the interest weekly on the utilised funds. You manage your own account and if you do not use the funds then you don't pay anything.
What are the benefits of an RCF?
You only pay interest on the money you draw: The interest rate is fixed, which means you only start paying when you utilise the facility.
No early repayment charges: You pay back as quickly as you would like and there are no fees for early repayment.
An RCF can grow with your business: If you are a great payer (repay promptly on the money withdrawn), your lender is more likely to increase your credit limit.
It is a lot cheaper than using your business credit card: interest rates on a RCF are considerably lower than that of a credit card.
No security is needed: However, you will have to provide a director's personal guarantee to secure finance.
What to watch out for when taking an RCF...
Be sure to manage your account, with it's great flexibility it can very quickly run away with you. Try and keep up with your interest payments, and try not over extend yourself.
With interest rates typically being higher with an RCF - try not to carry the outstanding balance for a period of time as this can get costly.
Without careful budgeting and planning, you could risk spending more than your business can afford.
If you are looking for long-term finance, this may not be the cheapest option for you. An RCF is more of a short-term option and is usually six months to two years.
If you would like to find out more about the Revolving Cash Facility (RCF) then please get in touch - we are here to make your lending journey simple!
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