Revolving credit is a flexible funding solution, widely considered to be one of the best options for alternative finance in the market.
So, what is a revolving credit facility? Think of it as a ‘revolving’ facility: it allows you to withdraw money, use it as you need, repay, and then again withdraw it as a business loan to use when you feel you need it.
One of the most critical components of your financial health is your credit score. People don’t usually understand that until they apply for a personal loan, car loan, business loan, or even a credit card. One way to enhance your credit score is by adding revolving credit to your credit report.
An example:
Suppose the Johnson company has applied for a revolving credit facility. However, the limit offered is £5,000. You need to buy some stock, and for that, you withdraw £2,000. After purchasing the stock, you decide to pay £2,000 along with interest within two months. Since you have paid £2,000, you can access the complete £5,000 once again. It’s one type of secured loan that you can utilize.
As with all things, revolving credit comes with its own pros and cons. Let’s break them down:
Pros of a Revolving Credit Facility
Funds are always available
The significant advantage of using a revolving loan is that the funds are always available for you. Whenever you need it, you can withdraw it and pay interest only on your withdrawal. The approval process is fast and smooth.
Secured finance
Revolving credit can be secured by an asset. This way, you will lower your interest rate. You can secure the loan on assets such as property, machinery, equipment, and other assets you may have.
Lower interest rate
Unlike other loan plans, you will have to pay a loan on the entire loan you apply for. With a revolving credit facility, you pay interest on the amount you have withdrawn. If you have £5,000 as your revolving loan amount and withdraw only £2,000, you will only pay interest on that amount.
Cons of a Revolving Credit Facility
Commitment fees
When it comes to revolving loans, you will have to pay the commitment fee, this will secure your loan for future use.
Lower credit limits
Because revolving credit loans are flexible and fluid, you will be offered lower credit than in comparison to a traditional loan.
Who is it good for?
The revolving credit facility is beneficial for business owners who need immediate credit to purchase equipment, stocks, products, and more. Apart from business owners, a revolving loan can be useful for people who need to pay emergency bills, pay for repairs, medical bills, and so on.
To find out more about revolving credit facilities, get in touch with Funding Bay. We work with a roster of lenders including, Fleximize, 365 Business Finance, Iwoca, and Bibby.
