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Revolving Credit Facility - Features & Differences

If you are thinking of getting a revolving credit facility, then you would know what one is. A revolving credit facility is also known as a revolving loan facility. It is a line of credit between a bank and a business or individual. This line of credit is pre-approved and is ongoing as long as your credit limit is maintained.


Revolving credit for a business is mostly used for operational costs that may often present themselves as large unexpected expenses. 


The Features:


The following are features of revolving credit facilities that you should know about:


  • Cash Sweep - You will have to agree with your bank on a cash sweep agreement. A cash sweep occurs when excess cash has been generated in your account, and the bank is allowed to use it to pay down any outstanding debt you may have incurred. This payment is usually taken ahead of schedule.


  • Maximum Amount - You and your bank will come to an agreement on what the maximum borrowing amount will be. The maximum amount is set based on your business's revenue. If the income happens to fall at any point in time and for any reason, the bank may lower the maximum amount to protect it from default. 


  • Interest Expense - As the borrower, you are charged interest on the amount of money borrowed instead of the entire revolver amount. This is one of the most substantial advantages of a revolving credit facility. It provides convenience and flexibility to you as the borrower. 


  • Reusable - The term revolver means recurring, going around and around non-stop; Once the outstanding balance has been paid off, the borrower can use the accessible funds again and again. This is a feature that sets it apart from the traditional types of loans. 


  • Commitment Fee - A commitment fee is charged by the bank. It is used as compensation for keeping you, the borrower, with open access for continued use. 



The Differences


Revolving credit differs from credit cards, installment/term loans, and even payday loans. The main differences that you will find are that:


  • There is no set period for repayment. If the revolver loan wasn’t used, there’s nothing to pay back.

  • Interest rates vary based on the amount borrowed instead of the full amount of funds available to the borrower.

  • Your credit limit changes based on the climate of your business. If the company isn’t performing well, then the maximum amount is lowered. It goes in the opposite direction when the company is doing well. 


A revolving credit facility has its place. It is an excellent facility to have in place in the event of anything going wrong. This loan facility will also help you to quickly build your business's credit score. The better you use this facility, the better your business score will be.


If you are thinking of acquiring a revolving credit facility, visit We are here to help you to make the best financial decisions for your business. 

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