What is a Credit Facility?
A Credit Facility is a type of loan for business or corporate finance. For a fixed fee, it allows a borrowing business to take out money over an extended period of time rather than reapplying for a loan each time it needs money.
There are two main types of credit facilities: short-term and long-term. A short-term facility is used for working capital requirements of an organization like paying off suppliers, bills, or employees. On the other hand, a long-term facility is used to meet the capital expenditure requirements of the enterprise and is generally financed through banks or private placements.
Why is a credit facility important?
The provision of credit is vital for the growth and development of any business. A credit facility is a great tool to enhance a company’s liquidity when no cash is available for financing business requirements. The facility is distributed at the company’s discretion and can be applied to different projects and departments in the firm.
How it works
A credit facility works like an overdraft. You pay a fixed fee to borrow funds whenever you want during a set period of time. The time period for repaying the loan is flexible, the borrower can choose their own repayment schedule. Like other loans, credit facility terms and particulars depend on the financial situation of the borrowing business and their unique credit history:
- The facility maximum is determined by the total number of receivables you have.
- You make monthly interest payments only on the funds in use.
- Monthly minimum fees apply with facilities ranging from 3–12 months.
A credit facility agreement will include details about the borrower’s responsibilities, loan warranties, lending amounts, interest rates, loan duration, default penalties, and repayment terms and conditions.
Benefits of credit facility
In addition to enhancing a company’s liquidity, a credit facility comes with other benefits:
- There’s no fixed repayment schedule
- A credit facility is quite flexible (unlike bank overdrafts)
- You get to borrow multiple times during a set period of time
- You only repay interest on the amount borrowed
- You can lock in a fixed rate of funding
What you didn’t know about a credit facility
- There are different types of credit facilities: short-term and long-term credit facilities, revolving loan facilities, committed facilities, retail credit facilities, etc.
- Companies frequently implement a credit facility in conjunction with closing a round of equity financing or raising money by selling shares of their stock.
- Credit facilities are great securities for businesses that need money in the future but aren’t sure when.
How Zetl can help you
Here at Zetl, we help SMEs build their business by providing a variety of funding solutions which include credit facilities. We help you unlock working capital in less than 24 hours so you can focus on what truly matters — growing your business.
Why choose us?
We are fast and flexible. Get paid the same day you issue the invoice. Repay only when your client settles.
Fully digital. Complete everything online — submit documents through our web app, and all contracts are executed digitally.
Confidential. Your client never needs to know about Zetl. All financing is fully confidential.
No personal guarantees. We believe business risk should be kept separate from personal liability.
Unlock funds by signing up on our website now! — www.zetl.com