Credit facilities for SMB owners
What is a credit facility?
A credit facility is a type of loan or credit product offered by financial institutions to businesses. It allows the borrower, in this case, a small or medium-sized business (SMB), to borrow money up to a certain limit over a set period of time. This flexibility enables businesses to manage cash flow, invest in new projects, or cover unexpected expenses.
How does a credit facility differ from a traditional loan?
Unlike a traditional loan that provides a lump sum amount upfront, a credit facility is more like a credit line. You can borrow up to the agreed limit, pay it back, and borrow again. This revolving nature provides ongoing access to funds, making it a flexible financial tool for SMBs.
Are there different types of credit facilities?
Yes, there are several types. The most common include:
Line of credit: Allows you to borrow, repay, and re-borrow funds up to a certain limit.
Term loan: Provides a specific amount of credit to be repaid over a set term.
Overdraft protection: Links to your business bank account to cover shortfalls.
Letter of credit: Used in international trade to ensure payment upon delivery of goods.
What should I know before applying for a credit facility?
Interest rates: Understand the rates and how they affect your repayments.
Repayment terms: Be clear on how and when you need to repay the borrowed funds.
Fees: Be aware of any application, annual, or transaction fees.
Credit requirements: Ensure your business credit score meets the lender’s requirements.
How do I answer when asked about other credit facilities?
If a lender asks about other credit facilities, they want to understand your existing financial commitments. Be honest and provide details about any other lines of credit, loans, or credit facilities your business currently has. This includes the type, the amount borrowed, the repayment terms, and how much of the credit limit you've used.