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Understanding Revolving Business Credit: Overdrafts and Invoice Finance

PUBLISHED ON: 28/10/2022

What is a revolving line of company finance?

Revolving business credit is a flexible line of funding which is available to a company to dip in and out of as and when it is needed. With this type of lending, money can be accessed, used, paid back, and then withdrawn again when the need arises. This differs to a fixed form of credit such as a commercial loan whereby a set amount is lent to a company, paid back in instalments, and once repaid these funds are no longer accessible unless by way of a brand new loan agreement. While fixed credit agreements run for a set period of time, revolving credit facilities are more open-ended. Revolving credit can take a number of forms including bank overdrafts, credit cards, and invoice finance agreements and are perfectly suited to short-term funding needs. Revolving credit facilities are typically much more flexible than fixed agreements, with the facility often growing as the company grows. Some benefits of revolving business credit:

  • Interest is only payable on the amount of money being borrowed at that moment in time rather than the full credit limit/facility available
  • Provides an element of certainty and security to a company’s cash flow position as they are no longer at the mercy of later payers
  • Funds can be used for a wide range of business purposes, from purchasing stock, filling cash flow gaps, or paying monthly overheads.

While revolving business credit can be ideal for those looking to ease cash flow worries and have immediate access to funds at any given time, for those who need a lump sum of money for one particular purchase such as a large piece of machinery or company vehicle, it is likely to be more cost-effective to source a form of finance specifically designed for longer term borrowing. Before taking out any form of third party funding for your limited company, you should make it a priority to speak to a commercial finance specialist. It is vital your immediate need for finance is carefully balanced with your company’s long-term objectives, and that any finance agreement you enter into now will be appropriate looking ahead into the future. At UKBF our commercial lending experts will not only provide guidance as to the most appropriate channel of funding based on your company’s needs, but will also scour the market to secure you this lending at the best rate possible. Contact our team today for industry-leading help and support.

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