Revolving Credit Facilities

A revolving credit facility is a pre-agreed source of business funding. Instead of receiving one lump sum and then repaying it until the agreement ends, you normally have a credit limit that can be used, repaid and used again while the facility remains available and subject to its terms.

For example, if your business had a £100,000 facility and drew £30,000, you would have £70,000 left available. As the £30,000 is repaid, some or all of that availability can return for future use.

That makes an RCF particularly useful when you know the business may need additional working capital during the year but you do not necessarily know exactly when or how much.

1. A lender assesses your business and agrees a maximum facility limit.
2. You draw some or all of the available money when the business needs it.
3. You repay the drawdown according to the agreed repayment structure.
4. As borrowing is repaid, availability can replenish and may be drawn again while the facility remains open.
5. The lender periodically reviews the facility and may increase, maintain or reduce the limit depending on the agreement and the performance of the business.

The detail matters. Some facilities are ongoing or evergreen subject to review. Others have a defined availability period during which new drawdowns can be made. Each drawdown can also have its own repayment term. Always check the facility term and the drawdown repayment term because they are not necessarily the same thing.

This is one of the most important things to understand when comparing RCFs. The phrase ‘revolving credit facility’ is used for several different structures across the UK business finance market.

Wise Factoring compares the structure of the facility as well as the headline cost, so you can understand what you are actually being offered before deciding whether an RCF is right for your business.

An RCF can work particularly well when the business does not need permanent borrowing but values having money available quickly when timing, growth or an opportunity creates a temporary need.

• Keeping a cash reserve available for unexpected costs.
• Buying stock or inventory before the resulting sales are received.
• Paying suppliers while waiting for customer receipts.
• Funding a large order or new contract.
• Managing temporary payroll or operating-cost pressure where the chosen lender permits it.
• Paying VAT, tax or HMRC liabilities where the chosen product permits that use.
• Taking advantage of bulk-purchase or supplier discounts.
• Funding marketing or other short-term growth expenditure where permitted.
• Replacing a larger invoice finance facility that the business no longer needs to use heavily.
• Reducing invoice-by-invoice administration where the business has become strong enough for a different funding structure.

Permitted uses vary by lender. A use that is acceptable to one RCF lender may be specifically excluded by another. Tell us what the money is actually for at the outset so we can focus on facilities designed for that requirement.

These products can all solve working-capital problems but they are funded and underwritten differently.

One of the clearest RCF use cases is an established business that has outgrown the need to fund most of its sales ledger.

A company may have used factoring or invoice discounting successfully for several years and built a much stronger cash position. It may now realise that it is paying for a large facility when it only needs a smaller reserve for emergencies, seasonal pressure or the occasional opportunity.

In that situation an RCF can be attractive because the business can retain access to funding without necessarily funding individual invoices. For businesses raising a very high volume of invoices, that can also reduce administration.

This was the logic behind a £500,000 RCF Wise Factoring arranged for an established aggregates business. The company wanted a substantial reserve it could dip into when required rather than continuing with a structure that involved more ledger administration than it now needed. The resulting RCF reduced administration and did not require a personal guarantee.

RCFs are not automatically better than factoring or invoice discounting. In many situations invoice finance is the stronger solution.

• The company is a new start or has a limited trading history.
• The business needs the maximum possible liquidity from a growing sales ledger.
• Turnover is rising quickly and funding needs to grow alongside eligible invoices.
• The balance sheet or recent financial performance makes a larger cash-flow RCF difficult to obtain.
• The business wants outsourced credit control.
• The business wants funding linked directly to completed B2B sales rather than relying mainly on its own credit profile.

Wise Factoring specialises in invoice finance as well as wider commercial finance, so we do not need to force an RCF into a situation where factoring or discounting would work better.

RCF limits can range from relatively small SME facilities to £1 million or more in the wider market. The amount your business can actually obtain is more important than the maximum printed on a lender’s website.

A lender advertising facilities ‘up to £1 million’ does not mean every qualifying business can borrow £1 million. At Wise Factoring, we are more interested in what your business is realistically likely to obtain and whether the repayments and structure make sense.

Your limit may be influenced by turnover, profitability, cash generation, trading history, bank conduct, existing borrowing, credit profile, available security and, for some facilities, the quality of your debtor book.

Potentially, yes. A lender may review the facility as turnover, profitability, cash generation and the overall financial position improve. However, an RCF does not necessarily increase automatically with every new sale.

This is an important difference from invoice finance. With a well-performing factoring or invoice discounting facility, availability can often grow more naturally as the eligible debtor book grows. With an RCF, the lender is normally deciding the overall exposure it is comfortable taking to the business and a larger limit may require a fresh review.

There is no single market-wide RCF rate because different facilities are priced in different ways.

One lender may charge a monthly rate on the amount drawn. Another may charge a fixed fee for each transaction or drawdown. Larger facilities can include service or facility fees. Some products cost nothing while unused while others charge for maintaining access to the credit line.

Two RCFs offering the same credit limit can have very different total costs and very different effects on cash flow. A lower advertised rate can be less attractive once service fees, drawdown fees, repayment frequency or security requirements are taken into account.

The right comparison is not simply ‘which lender has the lowest rate?’ It is ‘what will this facility cost me in the way I realistically intend to use it, how will I repay it and what obligations come with it?’

By this point, you will probably have realised why comparing revolving credit facilities is not simply a case of finding the lowest advertised rate.

Two facilities offering the same credit limit can have very different pricing structures, repayment periods, security requirements, personal guarantees, drawdown fees and rules around how the money can be used.

This is where using an experienced broker like Wise Factoring can be particularly valuable.

We do not simply compare headline rates. We look at the total cost and structure of each facility, including how and when charges apply, how long each drawdown can remain outstanding, how repayments work, what security is required and whether the facility actually suits the way your business intends to use it.

We then present the available options in a clear, easy-to-understand format so you can make an informed decision.

Our job is not just to find you a facility. It is to help you understand exactly what you are being offered.

Sometimes, but not always. Personal guarantee requirements vary considerably between lenders and can also change according to the size of the facility, the strength of the business and the security available.

Some smaller business lines of credit rely on a director’s personal guarantee. Larger facilities may use a company debenture and some lenders consider the PG requirement case by case. Strong established businesses can sometimes obtain substantial facilities without a personal guarantee.

Wise Factoring has arranged a £500,000 RCF for an established business without a PG. That does not mean the same structure will be available to every applicant, but it demonstrates why security should be compared rather than assumed.

A debenture is a form of security granted by a company to a lender over some or all of the company’s assets. In commercial finance it is common for a lender to want a first-ranking debenture, particularly on larger facilities.

If another lender already holds an all-assets debenture, this can affect whether a second facility can be put in place. The lenders may need to agree their respective security positions before completion.

Yes, in some circumstances. We have clients using both.

The main issue is normally security. If the invoice finance lender holds an all-assets debenture, the RCF lender may require consent, a waiver, a deed of priority or another agreed security arrangement before the second facility can complete.

This is another reason to disclose existing facilities at the beginning. It allows the broker and lenders to identify potential security conflicts before significant work has been completed.

Typical uses include short-term working capital, stock, suppliers, payroll, marketing, VAT or tax payments, seasonal pressure and funding a growth opportunity. However, this is not a universal list.

Lender rules differ. One facility may permit HMRC payments while another excludes overdue tax. One may allow equipment purchases while another is strictly limited to transactions that affect short-term working capital.

Tell us the intended use of funds before applying. It can materially affect which lenders are suitable.

An RCF is generally designed for working capital and short to medium-term cash-flow requirements rather than automatically being the answer to every funding need.

Long-term property purchases, acquisitions, major capital projects or refinancing long-term debt may be better served by commercial mortgages, acquisition finance, asset finance or a term loan. The right product should match the life of the asset or requirement being funded.

There is no single set of UK eligibility criteria.

Some SME lines of credit consider businesses with around a year or even less trading history and relatively modest turnover. Larger RCFs usually require a stronger trading record, higher turnover and more detailed financial information.

Rather than publishing one artificial Wise Factoring minimum, we assess the business against the range of facilities available. Typical factors include:

• Trading history.
• Annual and monthly turnover.
• Profitability and recent financial performance.
• Cash held in the business and bank-account conduct.
• Existing loans and other finance facilities.
• Director and company credit profile.
• Purpose of the funding.
• Sector.
• Debtor book where relevant.
• Security available and willingness to provide a PG where required.

The amount of information required normally increases with the size and complexity of the facility.

• Company and director details.
• Business bank statements or Open Banking access.
• Latest filed accounts where available.
• Up-to-date management information where available.
• Purpose of the funding and amount required.

• Latest filed accounts.
• Recent management accounts.
• Current profit and loss and balance sheet.
• Business bank statements / Open Banking.
• Aged debtor ledger.
• Aged creditor or purchase ledger where relevant.
• Details of current borrowing and security.
• Funding requirement and intended use.
• Forecasts where growth or future contracts form part of the case.

A larger or more complex facility can also involve deeper underwriting and discussions with the management team.

Wise Factoring was approached by an established aggregates business that had previously used invoice-based funding. The company was profitable and had a substantial debtor book, but the directors no longer needed to fund the ledger to the same extent.

The business wanted a large reserve it could use when required without the administration of funding individual invoices. The case also required careful analysis of the debtor book because contra trading and intercompany balances meant the headline ledger value was not the same as the amount a lender would treat as fundable.

We arranged a £500,000 revolving credit facility. The structure reduced ongoing administration, allowed the business to access funding when required and did not require a personal guarantee.

The lesson: the largest possible invoice finance limit is not always the facility an established business actually needs. Sometimes a smaller, simpler reserve is more appropriate.

A growing tool-hire business serving construction customers wanted access to additional working capital because customers could take around 60 days to pay while suppliers and payroll still had to be met.

The business did not necessarily want to fund every invoice. It wanted a reserve that could be available when cash-flow timing created a temporary gap.

A £50,000 revolving facility gave the company an additional source of working capital without turning the whole debtor book into an invoice finance arrangement.

The lesson: an RCF can work well as a safety net where the business is fundamentally healthy but customer payment cycles occasionally create pressure.

Wise Factoring specialises in helping UK businesses compare invoice finance and wider working-capital facilities. That matters with RCFs because the best solution is not always the product with the biggest advertised limit or the lowest headline rate.

• Access to a wide commercial finance lender panel.
• Experience comparing RCFs with factoring and invoice discounting.
• Real experience arranging facilities from smaller working-capital lines to a £500,000 RCF.
• Clear explanation of rates, fees, repayment structures, PGs and debentures.
• Help presenting the business and financial information to suitable lenders.
• A broker who can tell you when invoice finance may be a better fit than an RCF.

Tell us how much you need, what the money is for and a little about the business. We can then look at the most relevant RCF, line of credit and invoice finance options rather than forcing the requirement into one product.