Revolving credit: All SME owners need to know

What is revolving credit and why does my SME need it?

1. What exactly is revolving credit?

For a small business, a revolving credit line could be an important source of short-term funding. With revolving credit, a bank offers a specific amount of available credit for an indefinite period. The debt is repaid periodically, and the business can continue to borrow funds once the debt is repaid. There is no fixed monthly amount the borrower has to pay back, but interest will continue to accumulate on the debt as long as it is not repaid. In general, the credit can be used repeatedly up to the specified limit.

2. What are the advantages of revolving credit?

There are numerous advantages of using revolving credit as opposed to a regular line of credit or term loan. In particular, users of a revolving credit line will enjoy:

Flexible repayment terms

If you take on a term loan, you’ll have to make fixed monthly payments to service your debt. Such payments can strain a small business during certain periods when cash is tight. In contrast, a revolving line of credit offers the option of paying just the minimum amount due.

Cash on demand

Unlike regular loans, a revolving line of credit allows you to secure funding in advance by giving you access to funds whenever you need it. With ready access to funds, you can ensure that your company’s short-term cash needs are always taken care of.

Flexibility of use

With a revolving line of credit, you can decide however you wish to use the borrowed funds – whether it’s to purchase inventory or equipment, or pay for a company event.

3. How do I qualify for a revolving line of credit?

If you would like to apply for a revolving line of credit for your small business, you should be aware of certain criteria your company will have to meet. Banks are likely to review your company’s balance sheet, income statement and cash flow statement to establish your ability to repay your debt.

4. Where do I apply?

You can apply online for a DBS overdraft facility, which is a revolving line of credit. You’ll need to have a DBS business account to apply for an overdraft facility, and processing time is approximately two weeks from the date you submit your application and paperwork. For more information, speak to a DBS relationship manager today.

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