Declined for a business loan, then a £70,000 revolving credit facility — of which they drew £30,000
A revolving credit facility for Doors Shutters and Gates Ltd, turned down for an ordinary business loan. Three lenders approached, one yes, and the credit line was live the next working day. The PAYE bill was covered and the other £40,000 is still sitting there as working capital, costing nothing until it is drawn.
One real deal, named with Doors Shutters and Gates Ltd’s permission. It is a record of what happened, not an offer or an indication of what anyone else would be given.
The situation
Doors Shutters and Gates Ltd make and install doors, shutters and gates. They had a PAYE bill falling due and a working capital gap sitting behind it. They needed £70,000 of cash flow funding, and they needed it before HMRC did.
We already knew the business: they had funded their vans through our sister firm CW Asset Finance. That mattered here, because what the accounts showed on their own was a company carrying a good deal of existing lending on thin cash flow.
The challenge
The obvious route was an ordinary business loan, and that is where we started. It was declined. The lenders that looked at it wanted more information than the business could readily put in front of them, and the debt already on the balance sheet counted against the rest. Being declined is one lender’s opinion, but three in a row is a pattern worth listening to, and the job of a broker at that point is to change the product rather than keep asking the same question.
That left three ways forward, and only one of them was any good:
- Pay it from their own reserves. Possible, and it would have taken the cash out of the business at precisely the point it was tightest.
- Refinance machinery on asset finance terms. This would have turned a one-off tax bill into a long-term commitment secured on equipment they already owned.
- A revolving credit facility. You pay for what you draw and nothing for what you do not, which fits a tax bill you can size exactly and a cash flow gap you cannot.
What we did
Three lenders were approached. One came back with a yes, and that is the one it was placed with.
The revolving credit facility was agreed at £70,000, a limit rather than a lump sum. These are limited company products and this one charges no interest on a balance: instead there is a flat fee on each drawdown, set by how long you take to repay it, and nothing at all on the limit you leave untouched. They chose the twelve-month plan and drew £30,000 straight away to clear the PAYE bill.
The fee on that drawdown was 15.99%, so £4,797 on the £30,000, repaid alongside the capital in twelve instalments of £2,899.75. The remaining £40,000 stayed available and cost them nothing.
What happened
One working day from enquiry to a credit line in place — the facility was agreed and usable the next day. The PAYE bill was paid and the pressure came off the current account.
Drawing £30,000 rather than the full limit cost £4,797 in fees instead of £11,193. On a loan they would have taken the whole £70,000 and paid for the whole £70,000, because a loan does not let you leave half of it on the shelf. That is the argument for a facility in one number.
The other £40,000 is still there as standby working capital, for unpaid invoices and whatever comes next, and Gary, the director, put it this way: having it in place to use as he pleases is what takes the pressure off when HMRC comes knocking.
One thing worth saying, because we say it on the tax page too: HMRC will often agree an instalment plan directly, and it is usually cheaper than borrowing. Time to Pay is the first call. It is not automatic, and it was not the answer here, but it should always be the question.
Common questions
Can I get a revolving credit facility after a business loan was declined?
Sometimes, and it is worth asking. A facility is assessed differently from a term loan, and a lender that would not advance a lump sum may agree a limit you draw on as needed. It is not a way round a weak application. It is a different product that suits some situations better. In this case three lenders were approached and one said yes.
Can a revolving credit facility be used to pay a PAYE bill?
Yes. Money drawn from the facility is the company’s to use, and a tax bill is one of the commonest reasons to draw. Speak to HMRC first, though, because a Time to Pay arrangement can cost less than any borrowing.
What happens to the limit as I repay a drawdown?
On most revolving facilities, what you repay becomes available to draw again, up to the agreed limit. Each new drawdown carries its own charge for its own repayment period. Check how your provider handles it, because the detail varies.
Why would one lender approve what others turned down?
Because each applies its own policy. Lenders weigh existing debt, cash flow and the information in front of them differently, and a limit drawn as needed is a different risk from a lump sum paid out on day one. Knowing which policy a case fits is most of a broker’s job.
