The benefits of revolving credit, particularly in an environment where cashflow is tight.

Revolving credit benefits cashflow for developers

Developers’ cashflow needs to be managed carefully at the best of times, and during tougher economic conditions cashflow can be squeezed dramatically. Property sales can slow and if developers are relying on sales of completed projects to finance ongoing or new ones, they will need ways to control cashflow effectively.

A revolving credit facility can be a valuable financial tool for businesses, especially in environments where cash flow is tight or unpredictable.

Providing Flexible access to funds

Unlike term loans that provide a lump sum of money upfront, a revolving credit facility allows developers to draw funds as needed, repay, and draw again. This flexibility ensures that the business has access to funds when they need them.

Closing down Short-Term Liquidity Gaps

For businesses with unpredictable cash flows, the facility can be a safety net, allowing them to manage short-term liquidity gaps. For instance, a company can use the facility to cover expenses even if its receivables haven’t yet been collected. Also, developers often face challenges in securing the materials they need for their projects quickly, which can result in higher prices and negatively impact the bottom line of their project. To address this issue, revolving credit facilities can play a crucial role in helping developers access capital at the start of their project.

Typically, interest is charged only on the amount drawn, not on the entire credit limit; so if a business doesn’t need the funds, it doesn’t have to draw them and thus avoids unnecessary interest costs.

Support for growing businesses

For growing businesses, a revolving credit facility can support expansion opportunities without having to renegotiate a new loan or seek additional financing.

Having an established revolving credit facility can improve a company’s creditworthiness, signalling to suppliers and other stakeholders that the company has passed the lender’s scrutiny and has access to funds if needed.

When speed is of the essence

Once the revolving credit facility is set up, drawing funds is typically easier and faster than obtaining a new loan. The ease of access can be especially beneficial in emergency situations or where unexpected opportunities become available but speed is essential.

Alternative Overdraft

Alternative Bridging Corporation offers a creative solution with its Alternative Overdraft product. This revolving credit facility can be drawn upon whenever required, allowing borrowers to draw, repay or reduce funds as needed. There is no need for costly set-up charges each time a loan is needed and can be secured by a first or second charge on a residential or commercial property.

By using the Alternative Overdraft, developers can secure the facility on existing assets, allowing them to quickly drawdown to pay for materials at the beginning of the project. This can help them minimise the effects of inflation and keep the project within budget.

The Alternative Overdraft provides a facility from £250,000 to £3m and is secured by a first charge over commercial or residential properties, and a second charge over residential properties. The facility is available for two years and subject to review, with interest charged on the outstanding balance that can be serviced or accrued.