Are revolving credit facilities considered long term debt?

With 57% of UK businesses struggling with cash flow and most SMEs only able to cover the next 27 days of expenses, it’s no surprise many businesses are looking for suitable funding solutions. One of the solutions some businesses turn to is a revolving credit facility. But, can a revolving credit facility be used as a form of long-term debt?

Can a revolving credit facility be used long term?

That depends on what’s meant by “long term”.

Question: A revolving credit facility has been extended to Client A in the amount of £20,000. Can Client A take out the full £20,000 and repay either in monthly instalments over the course of five years or return the £20,000 in full in two years?

Answer: No, this is not how a revolving credit facility is meant to be used and leveraging it in this way could present Client A with negative consequences in the form of high interest rates, fees, and a hit to their personal or business credit score. This example is not recommended.

Question: Can Client B hold onto their revolving credit facility long term? If Client B has been offered a revolving credit facility in the amount of £5000, can they withdraw £1000 today, repay that amount in 29 days, then withdraw a further £500, and repay that in another 15 days, and continue this cycle long term with varying amounts?

Answer: Yes, depending on Client B’s lender and the terms they have both agreed to, this may be a suitable way of using a revolving credit facility. If Client B uses their revolving credit facility in this responsible manner, they may be able to hold onto their facility option for months, if not years.

What is the difference between a revolving credit facility and long-term debt?

The loan term is one key difference between the two funding types. The revolving credit facility is usually used as a form of short-term funding, whereas a long-term loan can be leveraged over an extended period.

While a revolving credit facility can sometimes come in the form of a secured loan, it is more common for them to be unsecured, meaning you do not need to put up collateral to get the funds. Some long-term loans can be secured, but it is more common for them to come in the form of a secured loan, for example, a mortgage uses the property as the asset against which the loan is secured.

Due to the short-term nature of revolving credit facilities, they can sometimes come with higher interest rates and larger fees when compared to long-term funding solutions. Also, a revolving credit facility can be used more than once, whereas a long-term debt may need to be renegotiated to be leveraged again.

What’s the alternative?

If you are looking for a revolving credit facility, start your journey by letting us know how much finance you need, what it’s for and submit your information. If you’re eligible, we may be able to connect you with suitable lenders. If, on the hand, you are looking for something more long term, there are many suitable options, including:

• Asset finance

• Commercial mortgages

• Property development finance

• Business loans

• Vehicle lease

• Equipment financing

To find out more about any of these loan types, simply click the relevant link above.

Apply for a revolving credit facility with Funding Options by Tide

Whether you’re looking for a revolving credit facility or something that can be used more long term, click the link below and submit your information to find out if we can match you to one or more of the 120+ lenders in our network.

Find a revolving credit facility

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.