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What is revolving credit?

Paying bills, making payroll, replenishing stock levels – sometimes your business needs extra cash there and then, without having to go through the process of applying for a loan.  

With revolving credit, your business has access to money up to a predetermined limit, known as a credit limit. It’s a more flexible kind of borrowing than a conventional loan, where you can withdraw money as and when you require it. 

How does revolving credit work?

As you would with a personal credit card, revolving credit facilities allow you to spend within your agreed limit. After you pay back what you owe and any interest due, either in instalments or all in one go, the full amount of credit is available to you once again. 

Since the money available to you tops back up after you repay it, it’s known as a ‘revolving’ facility. The amount you can borrow depends on factors like your credit history, the health of your business and your monthly revenue. 

What can I use revolving credit for? 

Although cashflow forecasting can help you plan for the future, even during a crisis, dealing with an unforeseen expense is never easy. With revolving credit you can attend to cashflow issues and ensure your business continues to operate as normal. 

For example, you might have an urgent problem, like a big tax bill or a broken piece of equipment, which makes other commitments like rent, payroll and supplier payments become harder to keep up with. 

Revolving credit can give you a safety net in case something unexpected pops up. As a result, you’ll be able to tide your business over and keep your landlord, staff and suppliers happy. 

What’s the difference between a credit card and a line of credit?

Common forms of revolving credit are business credit cards or business lines of credit, where you’re likely to be able to withdraw more. 

The main difference between the two is that business credit cards are generally unsecured. Credit cards don’t require any collateral, like property or equipment, but you’ll be charged higher interest rates and fees.

Secured lines of credit require some form of collateral to secure the loan against, which helps the lender minimise the risk of lending large sums of money. If the borrower defaults on a repayment, the lender can seize the assets to recover any debts.

Some lines of credit might be a one-time arrangement, while others can be revolving. With a revolving line of credit, you can tap back into the same amount after you’ve repaid what you owe, without having to apply again. 

What are the advantages of revolving credit? 

As with all lending products, revolving credit has it’s benefits and drawbacks. These are some common reasons why revolving credit can be an attractive option:

It’s fast: With a revolving credit facility you can get set up pretty quickly. With some lenders, you can even get cash the same day you apply. 

It’s straightforward: Unlike a conventional loan, you don’t need to enter into a new agreement each time you dip into your available credit. If you repay on time and your business grows, lenders may decide to extend your line of credit too.

It’s flexible: As you’re not locked into a long-term agreement, and you only pay interest on the money you use, revolving credit is more flexible than a typical loan. There’s no charges for early repayment either. 

What are the disadvantages of revolving credit?

Of course, depending on what you need finance for, revolving credit may not be right for your business. Here’s a few of the downsides to be aware of, to inform your decision-making: 

It’s a short-term solution: Credit facilities tend to run for a short period of time, generally from six to 24 months. If you’re looking to borrow for a longer period, a conventional business loan might be a better bet. 

It has higher interest: As credit facilities are generally designed for short-term, infrequent use, interest rates tend to be higher. You’re likely to find lower interest rates with business loans. 

Where can I find revolving credit for my business?

Both high street banks and newer, faster alternative lenders offer revolving credit facilities. 

At Fluidly, we save you the hassle of trawling through lots of different options. We work with over 40 lenders and can help you figure out what product is right for your business, so you can get the cash you need more quickly. 

Tell us your company name below and discover your CBILS options with Fluidly 

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