HOW TO UTILISE REVOLVING CREDIT FACILITY FOR YOUR COMPANY.

Описание: Essentially, like overdraft facility where the loan offered by your bank to finance your working capital, the revolving credit is a loan extended by the bank to a company to finance their working capital requirement as well. The revolving credit facility has given us an option whether to repay the loan in full upon maturity or just paying the interest and renew or rollover the principal for another month. Once the bank has approved the Revolving Credit facility, we can withdraw or drawdown the amount by preparing a letter to drawdown the revolving credit facility.

We will then be given an option whether to utilize the facility for 1 month, 2 months or 3 months period. Notice to renew or rollover the facility should be given at least 3 days before the maturity date. We will repay the interest and rollover the principal for another 1,2 or 3 months. Alternatively, we could redeem or repay the principal in full plus the interest payable. The principal amount that we had redeemed or paid can be reutilised in future depending on our working capital requirement. Normally, the unused portion of the revolving credit facility will be charged a commitment fees of 1% p.a. The process is quite simple, and I will teach you the full tutorial on how to utilise the revolving credit facility together with the sample of the letter we used to apply for the revolving credit facility in my next video.

So, what are the advantages of utilising the revolving credit facility compared of using a normal overdraft facility? First, the interest is cheaper since the bank is using the Cost of Fund or COF instead of Base Lending rate or BLR. Second, the amount utilised is higher compared with the overdraft facility. The only setback if we are using the revolving credit facility compared with an overdraft is, notice must be given to the bank at least 3 days before the drawdown of the revolving credit facility. The advantages of using the overdraft facility compared with the revolving credit facility are, first, no notice to utilise the facility is needed since it will be automatically used when our company’s current account balance has reached below zero balance.

Secondly, A good back up system to cover our Current Account in case our Current Account has reached a negative balance in the event that we placed our surplus fund in the money market placement earlier and suddenly we need to use our cheque for an urgent payment. The only setback of using the overdraft facility compared with a revolving credit facility is the interest is higher than the Revolving Credit's interest as the bank will use the base lending rate or BLR to calculate the overdraft interest.