We have found that most businesses are unaware of what a revolving credit facility is or how it works. The British Business bank published a report in October last year that showed one-third of businesses were just unaware of the alternative business finance options. In short, a revolving credit facility works like an overdraft. It allows business access to working capital when they need it, often with no fees when they don’t. They get the comfort of a fixed-line of credit or amount they can borrow, without the burden of the full cost. At Pinnacle Business Finance, we see revolving credit facilities as perfect for businesses with working capital problems.
Accessing an overdraft is not easy for any business but it is often regarded as the default working capital facility. Since 2011 the forum of private businesses found that the number of businesses using an overdraft had fallen from 25 to 17% by 2015. With so few businesses using an overdraft, it is often surprising so many want one. We see the reason as flexibility, they like the freedom of accessing working capital finance when they need it –like a revolving credit facility. A revolving credit facility allows you access to a fixed amount of money with you paying a day rate for when you use it. Most are unsecured and can be agreed quickly giving you the speed and flexibility you need.
The team at Pinnacle Business Finance often speak with businesses who tell us they have an unsecured overdraft. After looking further, they often forget they have a charge on their property or indeed a debenture on the business. This additional security is often not required with a revolving credit facility. One business owner we spoke to couldn’t access personal finance due to the charge being registered on their property. After some investigation, it was linked to the business overdraft. We got them a revolving credit facility at the same rate but with no charge required. The business continued to access the working capital it needed and the owner of their finance.
Alternative Business Finance Options
Alternative Business Finance solutions such as a revolving credit facility are quickly becoming the mainstream option. Forbes reported that in 2017, Alternative Finance in the UK grew by one third in just a year, despite the double-digit growth every year since 2011. As mentioned in the article, less than 1 in 5 businesses use an overdraft. At Pinnacle Business Finance we don’t see anything alternative about a revolving credit facility. Businesses should be open to the fact they need access to finance and indeed working capital. We have some fantastic lenders who provide great overdraft style facilities.
We recently spoke to a rapidly growing temporary recruitment business who was finding they were struggling with working capital. A growing amount of the work was private, so an invoice finance facility would only help with 60% of the business. We discussed a revolving credit facility and managed to get the facility agreed in under 48 hours. The business decided to wait for the bank, they wanted an overdraft, despite our lender’s facility operating in the same way. 3 months later the bank declined the overdraft and the business got back in touch. After a short discussion, they had turned away an estimated £50,000 a month’s worth of extra work due to a lack of working capital. It cost this business financially not to access the cash they needed when they needed it.