CBILS - Revolving Credit Facility
websitebuilder • 15 April 2020
The fourth in our series of five working capital guides will be answering the question: “What is a revolving credit facility?”.
Revolving credit facilities are a great alternative to a traditional overdraft provided by the high street banks. The funder agrees a line of credit with the business which can be drawn down and repaid during the agreed term.
Interest is often charged for the funds drawn, for the time they are drawn and dependent on the lender there is little to no charge for funds which aren’t drawn. When you combine that with often no set-up fee involved, this type of facility is often chosen as a ‘rainy day fund’.
How does a revolving credit facility work?
Revolving credit facilities are exactly that, they revolve. As apposed to a fixed business loan which runs for a term of say 3-5 years, a revolving facility is often a rolling agreement with the initial term either 12 or 24 months, with some facilities being structured on an ongoing rolling basis similar to that of a credit card.
Key Benefits
Revolving credit facilities are a great alternative to a traditional overdraft provided by the high street banks. The funder agrees a line of credit with the business which can be drawn down and repaid during the agreed term.
Interest is often charged for the funds drawn, for the time they are drawn and dependent on the lender there is little to no charge for funds which aren’t drawn. When you combine that with often no set-up fee involved, this type of facility is often chosen as a ‘rainy day fund’.
How does a revolving credit facility work?
Revolving credit facilities are exactly that, they revolve. As apposed to a fixed business loan which runs for a term of say 3-5 years, a revolving facility is often a rolling agreement with the initial term either 12 or 24 months, with some facilities being structured on an ongoing rolling basis similar to that of a credit card.
Key Benefits
- Quick – can be set up much quicker than a traditional overdraft or bank loan, often within a matter of days.
- PG backed - no security tied to the debt and as a result no legal or valuation fees.
- Flexibility – This product is perfect for businesses with seasonal need for working capital or growing businesses. Although they are often a more expensive option than a business loan, they do provide working capital for business which otherwise would be unlikely to be able to secure more traditional funding.
- You must be a UK based company either registered as a sole-trader, partnership or limited company.
- These types of facilities are available to start-up companies (often capped at a lower amount), as well as established businesses.
- Home ownership is almost always a requirement.
- The amount a lender offers is typically calculated as either one month’s revenue or the average turnover of the last 3 months.
- Credit profile personally & for the business must be fair.
- As these facilities are Personal Guarantee backed, a lender will often apply a 2:1 equity ratio, essentially if the borrower is asking for £40,000, the lender will need to be able to see equity in personal assets of £80,000, covering the debt 2:1.
We were approached by a client who had been operating successfully in the bar / restaurant sector for the past 9 years. The client was given the opportunity to purchase the freehold title of the restaurant and initially employed the services of another commercial finance broker to raise the capital for the purchase. The broker arranged a short term bridging loan combined with two other longer term loans for the client on the understanding that the client would be able to refinance onto a long term commercial mortgage post completion. The broker was unable to deliver on his promise of refinancing the client's debt, leaving the client with significant debt at an average interest rate of 13.5%. The client approached Equinox Commercial Finance and we were able to refinance the £430k debt onto a commercial owner occupier mortgage at a 5-year fixed interest rate of 8.31%.
The programme was developed in conjunction with the Association of Short-Term Lenders (ASTL) and Financial Intermediaries and Brokers Association (FIBA). It is designed to build skills and knowledge of the specialist property finance sector, including bridging finance, buy to let lending, commercial mortgage lending, and development finance. Key Skills Include: Ability to apply understanding and identify most suitable product for customers Understanding of exit strategies of financial products Understanding of regulatory and processing requirements, and how each of them is underwritten Understanding of the benefits and risks of different specialist finance products, to customers and lenders Understanding of the different types of specialist property finance options.
We were able to provide a commercial mortgage to a North Yorkshire landlord who had previously taken a two year bridging loan to secure the purchase of a pub. The landlord was a new entrant to the leisure industry two years ago, having retired from his previous profession 12 months earlier. Therefore, The client had less than the 3 years of minimum experience required by commercial mortgage lenders operating in this sector at the time. On this basis Equinox Commercial Finance were able to provide a 2 year Commercial Bridging Loan to the client, which enabled him to purchase the property. At the end of the 2 year term the client had enough experience to be able to re-finance onto a long-term commercial mortgage, although given the current climate most lenders had withdrawn their appetite to lend to the sector. The client had implemented some impressive growth plans including increasing the size of the rear bar area, further decorative improvements and development of the outside areas. He had also made significant cost reductions, which helped his cash flow position. On this basis Equinox Commercial Finance were able to provide a mid term Commercial Mortgage product to the client, with a view to refinancing again when the current turbulence in the lending market subsides and mainstream lenders are open to the leisure sector once again.
Asset refinancing is a way of releasing cash from a business asset that your company already owns. Lots of businesses across all sectors have cash tied up in equipment, machinery and vehicles.
We were approached by a local accountancy practice who were looking to refinance property within its existing SSAS Pension Fund to purchase a new office. The client was looking to raise capital of £330k to complete the purchase. Equinox Commercial Finance were able to place the client with a specialist lender that was able to offer 55% LTV over 25 years at 5.85% + BOE Base Rate.
We were approached by a UK ex-pat currently living in Canada who wished to refinance a commercial investment mortgage to buy more property. The client was looking for the maximum loan to value (LTV) available on his personally owned portfolio of three fully tenanted industrial units located in Surrey, valued at £1.15 million. The limiting factor for the client was his current ex-pat status, which precluded him from offers of funding from all of the mainstream high street banks. Equinox Commercial Finance were able to place the client with a specialist lender that was able to offer 60% LTV and a 5-year fixed rate.
We were approached by a local business wishing to purchase a CNC Machine to improve the output and efficiency of their busy production line. A CNC machine would allow for the automation and control of machine tools and can be used to perform precise cuts and other machining tasks, that would be difficult to do with the human hand. CNC machines are also used on tasks that humans can do themselves, but which would take them much longer to complete. We have access to a whole of market panel of lenders and were able to quickly secure hire purchase finance for the machine at a competitive rate of 5.3% over a 7-year term.
The start of 2022 saw a jump in new tenants looking to rent UK commercial property, with the uplift particularly prevalent in prime office space. Investor enquiries across all UK commercial property also continued to rise, according to the RICS. Read the Full Report here>
The UK holiday let industry has been steadily growing in popularity among property investors and holiday goers alike and doesn’t look to be slowing down anytime soon! The yields available on holiday let properties have rocketed, and it is no surprise to see well-maintained properties, in the right locations, producing yields over 12% per annum. Holiday let properties offer some landlords an alternative tax-efficient investment vehicle, due to a more favourable treatment of loan interest. This has been felt even more by landlords since the full loan-interest tax-relief restrictions came into force in April 2020. However, we advise that clients seek professional tax advice before making any decisions. We have access to a wide pool of lenders offering holiday let mortgages. They typically offer: A maximum loan to value (LTV) of 75% Rates from 3.29% on a two-year fixed rate, through to 3.79% for a five-year fixed rate. Mortgages are available to individuals, property holding companies, or trading limited companies (i.e. the client's current business operation). If you are looking to diversify your property investment portfolio, or continuing to expand an existing holiday let portfolio please call us on 01845 591488.
We've recently seen an increase in enquiries from business owners looking to purchase property from which to run their company. Often, their existing landlord has offered to sell them the property before putting it on the open market. Others have found recently vacated property, which perfectly suits their businesses’ requirements. For example, we recently placed a relocating Children's Day Care Nursey client with a lender who was able to offer a mortgage equal to 65% of the full going concern value of the nursery, which included the goodwill of the business at an interest rate of 3.92%, fixed for 10 years. If purchasing your own business premises is something you’re looking to do, we can help.
