A revolving credit facility lets your business borrow what it needs, repay it, and borrow again without reapplying each time.
If you run a business in Perth, you know the feeling of waiting on a client's payment while wages and suppliers still need paying. A revolving facility can bridge that gap. You only pay interest on the amount you use, but you need to understand the fees, security and limit conditions before you sign.
What Is a Revolving Credit Facility?
A revolving credit facility is a limit set by a lender that your business can draw on, repay and draw on again. Interest is generally charged on the amount drawn rather than the full limit, and some lenders also charge establishment or ongoing fees.
Think of it as a pool of funds sitting in the background. When money comes in, you pay the balance down and the space opens up again. Some facilities are secured against business or property assets, while others work as an unsecured business line of credit. Security requirements and pricing vary by lender and by your business profile. Our cashflow solutions page covers the options we can look at with you.
Revolving Credit vs Term Loan: Which Suits Your Business?
A revolving facility suits ongoing or unpredictable gaps in cash, while a term loan suits a one-off cost with a set repayment schedule. The two do different jobs.
A term loan gives you a lump sum and fixed repayments over an agreed period. That works well for a defined purchase or project. A revolving facility, much like a business overdraft, gives you a limit to dip into as needed. When comparing a business overdraft vs term loan, ask yourself whether you know exactly how much you need and when you will repay it. If you do, a term loan may fit. If the amount and timing shift from month to month, a revolving limit is usually the closer match.
The trade-off is discipline. Because the money is always there, it is tempting to leave the balance sitting for months. Lenders can also review your limit over time. If you want a lump sum to cover stock or growth costs, have a look at our working capital loans.
Line of Credit vs Invoice Financing: How They Differ
A line of credit gives you a limit to draw on whenever you need it, while invoice financing advances money against specific unpaid invoices. One is tied to your business as a whole, the other to your customers' bills.
With invoice financing, the amount you can access depends on the invoices you have raised. Fees apply, and your customers may become part of the process, depending on how the arrangement is set up. A line of credit is not linked to particular invoices, so you can use it for wages, rent or materials. The lender will look at your overall financial position when deciding on the limit.
If your cashflow trouble comes mostly from a few large, slow-paying clients, invoice financing may suit. If it comes from a mix of costs and uneven income, a line of credit is often the more flexible business funding.
How a Perth Contractor Might Use a $50,000 Limit
Consider a Perth electrical contractor who finishes a large job and invoices the client on 45-day terms. Wages and materials for the next job come to $30,000 before the payment arrives.
The contractor has a $50,000 revolving facility, so they draw $30,000 and keep working. Using an illustrative rate of 6.75% p.a., interest on $30,000 for 45 days is about $250 (30,000 x 0.0675 x 45 / 365). Your actual rate will depend on the lender and your circumstances, and any facility fees would be added to that figure.
When the client pays, the contractor repays the $30,000. The balance returns to zero and the full $50,000 is available again for the next gap. The short-term funding did its job without a new application, and without a large repayment sitting on the books for years.
What Are the Costs and Risks of a Revolving Facility?
The main costs are interest on the drawn balance and any lender fees, and the main risk is using the facility to cover ongoing losses instead of timing gaps. A revolving limit helps with when money arrives. It does not fix a business that is spending more than it earns.
Other points to weigh up:
- Rates on many facilities can change over time, which affects your costs.
- The lender may ask for security, or personal guarantees from directors.
- Limits can be reviewed, reduced or withdrawn under the facility terms.
Good cashflow management makes the facility work for you. Know when your big bills fall due, and plan to clear the balance when your invoices are paid. An online loan calculator can help you test different draw amounts before you commit.
Is a Revolving Facility Right for Seasonal Cashflow?
A revolving facility can suit seasonal cashflow if your busy periods bring in enough to clear the balance. It lets you stock up or cover wages in the quiet months, then repay when trade picks up.
It is less suited to buying equipment or vehicles. Those purchases usually suit a fixed-term product, and our asset finance team can talk you through that. Using a revolving limit for long-term assets can leave the balance stuck for years, which defeats the purpose of a flexible limit.
If you are weighing up a few options, we can look at your numbers with you and compare what suits your situation, including broader business loans. We are a local team who like to see Perth businesses do well, and we will always talk you through the costs as well as the benefits.
Call one of our team or book an appointment at a time that works for you, and we will work out together whether a revolving credit facility is right for your business.
