Revolving credit facility UK

Are you an entrepreneur who believes that it is time for your business to expand and reach the maximum potential of your market? The way to do this is to access working capital financing. However, you don’t step inside the bank and hand-over your filled-up application form with your required documents. It would help if you had an in-depth assessment and analysis to come up with a decision whether to access credit or wait for a while and build your cash flow.

Before taking into consideration the accessing of credit, you need to know the current condition of your working capital ratio. Calculate working capital ratio by dividing the total current assets over the total current liabilities. The result will show your liquidity or the capability of your business to be able to pay the obligations. The higher the ratio, the greater is your business’ flexibility to expand. If the ratio is less than 1:1, your business will find it hard to pay the obligations. However, even if the ration is higher than 1:1, you need to consider how fast you could sell the inventories and collect the accounts receivable.

Entrepreneurs and new businesses are finding ways and means to access a significant amount of working capital. In working capital financing, the market is offering revolving credit facility UK to help a small business boost and maximize the cash flow performance.

What is the cash flow?

Cash flow is the heart of a small business. Most of the entrepreneurs, borrowing money can create a smooth, expanded and maximum ability of the company. Credit can stabilize cash flow and make the company respond to the demand. If you are an entrepreneur, do not just borrow any amount of money. You must know how much is your capital need to run the business.

Cash flow is the money that is moving in and out of business every month — the cash is coming in from the profit of sales of the products and services. If the clients don’t pay at the time, it will still in the cash flow as accounts receivable. The cash that is going out from the cash flow are expenses such as rentals, mortgage, loan payment, payment of taxes and other accounts payable.

If a higher amount of money is coming in than going out because of expenses, then you have a healthy cash flow. However, if you have more significant costs rather than sales, the cash flow could be in danger from depletion. Most of the small business which forced to become big and do not consider financial planning end up to fail. When small or new business tends to grow big, accessing credit as working capital will cover the shortage in the cash flow.

What you need to understand about working capital?

Working capital is an indicator of a business’ liquidity, efficiency and financial health. If the company has a significant working capital, it can maximize the potential to reach the top market, innovation, taking the risk to technologies on trend and be the top of the industry.

Working capital means the difference between current assets and current liability. Current assets could be in the form of cash, account receivable, inventories of raw materials and finished products. You need to pay the current liabilities are accounts. If your business’ existing assets are too low or relatively equal to your current obligations, then you need to be wary and manage how you spend the money you earn.

Should you need Working Capital Finance?

Working capital finance is a credit program designed for businesses that aim to boost the working capital. The credit is often used to grow a project, invest in a new market, or scale-up a product. Though the use of working capital financing depends on the business owner the over-all idea of the working capital finance is to free-up cash to grow the business.

Here are some of the type of working capital finance:

  • Invoice finance
  • Asset refinancing
  • The tax bill and VAT funding
  • Merchant cash advance
  • Revolving credit facility

How Revolving Credit Facility UK works?

The revolving credit facility is a type of working capital financing. The facility is not a fixed business loan but a rolling agreement. Just like a credit card or bank overdraft, it has a credit limit. The payment terms specify how long a borrower should be able to pay after drawing the money. The bank will release you a card that you will use in the transaction.

Usually, once you have paid the money, you can again withdraw. The term is called “revolving.” This type of loan is one that can be automatically be renewed.

In most cases, lenders will offer maximum amount depending on the financial strength of the business. The only security is a personal guarantee. There are cases that the bank would require a commitment fee that needs to be given upfront. The standard monthly interest will be charged in every amount drawn.

High fees apply compared to fixed-term loans because of convenience and flexibility. The term is between 6 months and two years. If you are a good creditor, the lender will offer renewal at the end of the time. The lender also provides an increase of limit.

Benefits of Revolving Loan Facility UK

  • Flexibility. A growing business that often experiences some dips can have immediate funds to use to cope-up with the business operations. Perfect if the need is to cover specific cash flow gaps
  • Quick decision. The approval is fast, and access to credit fund is immediate. Address the short-term costs of the business immediately
  • No need to renew agreements. Too handy that you don’t need to process new contracts every time you access funds.
  • No security required — no need for asset valuations.
  • Sustain your supply chain. You can always have the money to pay your supplier on time