CASHFLOW FACILITY

Cashflow Facility

As the saying goes, “Cash is King” and cash flow is needed to keep your business moving. 

 

A cash flow facility, often referred to as a revolving loan, provides revolving access to funds, enabling you to quickly withdraw funds when you need it, and repay when you wish. There is a credit limit, like an overdraft, which you can borrow up to. 

 

It offers more flexibility than a loan, with the ability to re-draw funds repaid and designed for short-term borrowing at a time. Interest is typically charged on a daily basis on the amount utilised – albeit some lenders may charge a lower rate on any undrawn portion of the facility. 

How does it work?

Think about a cash flow facility as a pot of money you can dip into when your business needs it most, be this for wages, supplier payments or any cash flow expense. 

A limit is agreed with the lender, with a term of the facility. A commitment fee for the use of the credit line is normally paid. You are then free to draw funds from the ‘pot’ as and when is needed. 

 

Fixed interest is payable, normally charged at a daily rate on the amount of funds you borrow. Your payment terms will specify how quickly you need to make repayments after making a withdrawal.  

 

Once you have made a repayment, you are then free to re-draw from the ‘pot’ if needed. 

Credit limits will vary by lender and type of business, but a typical limit would be the equivalent of an average months turnover.  

Whilst open-ended in its nature, there is a term to the facility, typically between 6 months and 2 years, where the balance needs to be repaid. If you have been a reliable customer, the lender will likely be open to renewing the facility and potentially an increased limit. 

Advantages of a Cashflow Facility

  • Only pay interest on the portion of the facility you are using 

  • Generally more likely to be approved than an overdraft facility 

  • Cheaper than using a Credit Card to withdraw cash 

  • It offers great flexibility – if your business is growing and needs to occasionally dip into a ‘pot’ of funds. There is no tie-down to meet periodic repayments and whilst the interest rate will be higher than a business loan, if used correctly, the cash flow facility should work out cheaper as you only pay interest when you using the funds. 

  • The facility can grow with your business – if you are a reliable borrower, and your business is growing, the lender is likely to be amenable to extending additional credit at each maturity. 

 

Disadvantages of a Cashflow Facility

 

  • The interest rate is often higher than that on a conventional loan so it will only be cost effective if being used correctly. 

  • An arrangement, or commitment fee is likely to be payable 

  • Not suitable for start-up businesses – lenders will want to see some trading history  

  • A Personal Guarantee is likely to be required for this type of facility. 

  • If you are looking for long term funding, this product will not be suitable 

  • Think about a cash flow facility as a pot of money you can dip into when your business needs it most, be this for wages, supplier payments or any cash flow expense. 

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