Revolving Credit Line
We arrange revolving credit lines secured by receivables, giving businesses flexible access to working capital as they grow.
We’d be glad to learn more about your company and discuss the best ways we can help.
Revolving Credit Line (aka revolver or revolving line) is a special type of loan where the borrower can draw, repay and redraw, either partially or in full, at any time during the tenor of the loan.
There is no penalty for partial or full repayment.
Borrowers can use a revolving line to finance supply chain activities such as purchase of inventories and supplier payments. Banks also allow the line to be used to bridge liquidity gaps such as invoice financing. Some banks allow all purpose revolving lines which allows funds to be used for payroll or small capital expenditure like machinery upgrade.
Supply chain activities tend to have tide and ebb patterns, for which the revolving line is ideal e.g. line is drawn when inventories build up and repaid when customers make payments. The versatility and flexibility makes the product a must have for growing companies.
To obtain a revolving line, the borrower must have a proven track record of strong inventory to cash cycle. Banks are more comfortable with borrowers that sell generic products and have known value in the market. Specialised, customised products are not preferred.
It is not common for a bank to grant a revolving line to a new borrower outright, unless the borrower is well known in the market and well banked, or the bank is refinancing an existing revolving line.
To approve a revolving line, banks do a deeper analysis of the borrower’s supply chain. Inventory-to-cash cycle is the most important. Banks scrutinize supplier contracts, customer contracts, inventory records, account receivable records and payment history to determine whether to fund or not, and fund under what terms. It is therefore important for the borrower to have a good ERP system that provides transparency and analytics on the entire supply chain. Also important are collection practices and proper documentation of policies and procedures.
Only pay for what you use – Interest applies only to the borrowed amount, not the entire credit limit (some banks may apply an ongoing fee on the undrawn amount)
Boosts cash flow stability – Helps businesses manage short-term gaps between expenses and incoming revenue.
No need for reapplication – Once approved, businesses can repeatedly draw from the credit line without additional paperwork.
Once repayments are made, the credit becomes available again, allowing businesses to re-borrow as needed.
There’s no obligation to use the full credit line—businesses can access funds only when necessary.
Requires more preparation than invoice financing to be eligible for the loan- ERP system, data accuracy, reporting have to be high quality.
Not easily available to businesses that produce specialised products that do not have a secondary market, or whose prices are highly volatile (e.g. linked to price of commodities).
Revolving credit facility is a useful general purpose loan product. Flexibility in use of proceeds and longer tenor are highly desirable features. The process of obtaining approval is effort intensive. But once the approval is in place, the utilization is relatively straight forward. Bayfront has relationships with all the banks that offer this product, and has assisted many companies to successfully get the borrowing applications approved.
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