01.04.2019

Structuring your cash reserves

It is beneficial for your business to have a rainy day fund – it will provide money for unexpected expenses, such as repairs or buying new machinery, or simply covering costs when things are tight.

A flexible revolver finance fleet facility enables this by allowing you to access and repay funds against a pool of secured assets. 

When you borrow against an asset, the facility limit is based on a percentage of the value of this asset. You can move funds in and out of the facility provided you remain under its limit. As you repay the loan, the facility limit reduces, ideally in line with the economic working life of the asset. 

The flexibility of this finance option means you can use this ‘spare’ cash in your business while paying less interest than you would with a comparable term loan. When your income is good, you can aggressively repay debt without stripping your working capital and reducing the amount of interest you pay. When income is low, you can readily access cash by drawing it back out of the facility. 

It’s also worth noting that you can typically buy assets and add them to the facility with a minimal amount of paperwork, and with the confidence of pre-approved credit limits. You can also sell assets and repay the debt with no interest penalties.

If you think your business would benefit with a revolver account, talk to your Finance New Zealand business partner today.