A recurring credit facility is a business loan that provides borrowers ongoing access to funds as needed. It works by setting a credit limit for the borrower, which can be drawn upon as and when required.
The borrower is charged interest only on the amount borrowed as and when utilised. It is similar to a bank over-draft.
For example, a business with a recurring credit facility of £50,000 can draw upon this amount anytime. Suppose it draws £10,000 in the first month, repays £5,000 in the second month, and borrows £7,000 in the third month. In that case, the business is charged interest only on the outstanding balance of £12,000.
Businesses often use recurring credit facilities as a convenient way to manage cash flow and cover short-term funding needs. Banks or other financial institutions typically offer them, and they can be secured or unsecured depending on the borrower’s creditworthiness.
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