Is An RCF a Good Business Loan Option?
Posted on 23rd June 2020 at 05:11
When we were growing up, we unknowingly had access to the best revolving credit facility available, a.k.a. our parents. As an adult and a business owner, accessing additional funds is not quite as easy. We need to determine which business loan options are the best for our needs, and in some cases, whether we want to take out a loan at all.
Do I Need a Loan?
The answer to this question is obvious to many given the current economic tangle; COVID-19 has forced many businesses into dire circumstances with limited options.
However, outside of the COVID crisis, there are likely to be other situations requiring a cash injection.
For example, we may seek a business loan if we are considering moving premises, expanding our staff compliment and facing recruitment costs, or even just to cover salaries or existing debts temporarily. Alternatively, your business may need extra cash for seasonal stock purchases or business taxes.
If you’re looking for a temporary financial solution, then we’d like to highlight the benefits of the Revolving Cashflow Facility (RCF).
RCF – A great business loan option
An RCF is a great business loan option if you’re looking for a short to mid-term solution. (12 months is the norm.)
The key benefits of an RCF lie within its flexibility.
For example, let’s say that you need to buy additional stock for an upcoming busy season. As with a credit card or a bank overdraft, you have access to a set amount of funds but you only access what you need, thereby paying significantly less interest than you would on the whole amount.
Interest is charged per day which may seem a little daunting at first but actually allows for much better cash flow management. Interest rates are from 0.075% - or just 75p per £1,000 per day.
The revolving facility allows you to make multiple withdrawals during the loan period without having to reapply for a loan when times are tough. So, no additional loan or ‘admin’ fees to eat away at your assets.
The Revolving Cashflow Facility does not have a fixed number of payments, unlike an instalment loan on your home or car, for example. This allows you to draw down as many times as you need to up to your agreed lending limit and pay back these amounts when your situation allows it. This facility remains an interest-only loan for the loan period.
If you have a bumper month and would like to settle the outstanding balance on your business loan, then you can do so without incurring early payment fees.
In some cases, companies who have lost a key client may need a little cash boost to carry staff salaries or other business expenses while they recover, and the RCF would certainly be the route to follow.
What you need to know about an RCF
You likely want to know whether you’re eligible for a Revolving Cashflow Facility and any other small print which will help you to make your decision. Let’s take a look.
Credit ranges are available from £10,000 to £500,000
No management fees
No charges for early repayment
Fixed rates for the period of the loan
Available to businesses with less than 12 month’s trading
Loan amounts depend on your business performance and credit record
Generally require a personal guarantee
Available to registered UK businesses
Must have been trading for a minimum of 3 months
Is an RCF the best business loan option for you?
It’s worth noting that revolving loans can incur higher interest rates than other business loans, so it’s a good idea to chat with one of our team who will be able to offer advice based on your unique circumstances.
Please feel free to contact us on 0203 325 8000 with any questions and we will be happy to guide you through your cash flow challenges.
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