An in-depth comparison of Term loans and revolving credit facilities

Term Loans vs Revolving Credit Facilities.

Businesses are often confronted with a multitude of financial products, each with its unique characteristics and benefits. Two frequently misunderstood products are term loans and revolving credit facilities – so what are they?

In this detailed blog post, we intend to explain the ins and outs of these two financial products.  Highlighting their benefits and providing examples of suitable scenarios for their use.   In addition, we will explore two of Alternative Bridging’s unique financial products.

The Alternative Term Loan and Alternative Overdraft.  And how understanding our term loan and revolving credit financial products can play a pivotal role in your financial strategy.

Term loans and revolving credit facilities each offer unique advantages, designed to cater to different business needs.   Term loans, such as our Alternative Term Loan, are an excellent choice for businesses seeking long-term funding for specific projects or purchases.

In contrast, revolving credit facilities, akin to our Alternative Overdraft, offer businesses the versatility to manage their fluctuating cash flow requirements effectively.

Term loans vs revolving credit facilities – The Core Differences

What is the difference between a bank loan and a term loan?

A bank loan is a general term referring to any loan made by a bank, which could be a term loan, mortgage, auto loan or personal loan.   On the other hand, a term loan is a specific type of loan.   A lump sum is borrowed and then repaid with interest over a specified period.   This term could range from one year to several years.

What is the difference between revolving credit and a term loan?

While both forms of debt, term loans and revolving credit facilities differ fundamentally in structure. A term loan involves borrowing a fixed amount of money, repaying this sum with interest over a specified term. Conversely, a revolving credit facility operates similarly to a credit card.  This  affords businesses a credit limit that they can borrow against, repay and borrow again.

Is a term loan a revolving credit?

No, a term loan is not a revolving credit. Term loans provide a one-time lump sum loan with a fixed repayment schedule. In contrast, revolving credit offers continuous access to funds up to an agreed limit, with flexibility in borrowing, repaying and re-borrowing.

What is the difference between a term loan and a cash credit facility?

While both are forms of lending, their purposes and structures differ. Term loans are designed for long-term investments and are repaid over a predetermined period. Cash credit facilities (similar to revolving credit) serve short-term working capital needs, with interest charged only on the used amount and the flexibility to withdraw and repay funds as required, up to the credit limit.

Highlighting Alternative Bridging’s unique financial products

At Alternative Bridging Corporation, we offer financial products designed to cater to the needs of our clients.  These include our standout offerings – the Alternative Term Loan and the Alternative Overdraft.

Alternative Term Loan

Our Term Loan product has just been updated.

• There is now No ERC (early repayment charge) (Nov 2023)
• The new rate is  6.75 over BOEBR.

Our term loan product is an interest-only offering available for periods up to five years.

It provides a secure funding source perfect for new and growing businesses, asset management situations or to release working capital.   It’s ideally suited for purchasing, refinancing and improving property.  The loan structure aligns with cash-flow, with unique provisions for accruing interest when property income isn’t yet stabilised.  This offers an invaluable lifeline for business start-ups. As your asset value increases, the option for additional advances makes this loan highly flexible and responsive to your business’s progress.

Alternative Overdraft

Our innovative overdraft facility offers on-demand liquidity.  This makes it an ideal choice for site acquisitions, property auction purchases or funding work-in-progress. With loans from £250,000 to £2M and a tenure of two years, this facility enables under-utilised assets to be an integral part of your financial planning. It also allows multiple drawdowns repayable or redrawable at will.  Interest is charged only on the outstanding balance. The Alternative Overdraft also helps avoids the high, repetitive set-up costs, saving you money over time.

Additional Q&A

What is an example of a revolving facility?

A common example of a revolving facility is a business line of credit. Businesses can draw funds up to an agreed-upon limit, repay the borrowed amount and then borrow again as needed. This process can continue as long as the credit line remains open and the business remains within its credit limit.

What is the opposite of a revolving credit facility?

The opposite of a revolving credit facility is typically a term loan. While revolving credit facilities provide ongoing access to a pool of funds that can be borrowed, repaid and borrowed again.  Term loans involve a one-time disbursement of funds which is then repaid over a predetermined term.

What loans are revolving credit?

Common examples of revolving credit include credit cards and business lines of credit.   These allow the borrower to draw, repay and redraw funds up to their credit limit.

Whether you lean towards a term loan or a revolving credit facility, understanding these financial products can ensure you make savvy decisions that align with your financial needs. At Alternative Bridging, we’re dedicated to helping guide you through these decisions.   Ensuring you access to the most suitable financial products for your business. With our industry expertise, passion for lending and commitment to service.   We’re here to support your business’s financial journey, every step of the way.