Revolving Credit Facility ("RCF") is a loan product that allows borrowers to take multiple loans (draw down) over time, up to a pre-approved overall limit. They may repay the loan(s) anytime and draw down again, as long as their total outstanding is below the overall RCF limit. Each draw down is crowdfunded and an opportunity for investment.
The RCF tenor can be up to 12 months. The tenor of each loan drawn from the borrower is capped at the initial RCF expiry date. The borrower has an option to repay early without prepayment fee. This encourages a reduction in total loan exposure. The principal amount is due only at the end of the RCF's tenor.
Simple interest returns range from 8% - 24% p.a. depending on the credit risk of the borrower. Interest is billed to the borrower on the loan amounts utilised monthly and interest is paid out to investors 14 days later.
In what scenarios will RCF be the best product for the borrower, instead of Term Loan or Invoice Financing?
A Revolving Credit Facility is useful for borrowers who have uncertainty of timing for multiple purchases from suppliers. To minimize operational delays, an overall credit line will be given and drawn down over time to pay suppliers as and when due, without having to go through the full credit process. It is also more prudent to match the borrower’s requirement as and when needed.
Also, due to certain industry practices, borrowers might not be able to issue invoices to debtors without third party certification, so our Invoice Financing solution may not be a suitable solution..
It is also not suitable to provide a Term Loan with a fixed repayment schedule since the payments from the debtor are not on a fixed schedule.
You invest S$1,000 in a Revolving Credit Facility with 8% interest p.a. and the borrower repays the loan in 3 months.
Net Simple Interest:
8% / 12 (months) * 3 (months) = 2%
S$1,000 * 2% = S$20
Total repayment at the end of 3 months:
S$1,000 + S$20 = S$1,020
How does the tenor work if the borrower is taking multiple loans?
Example: A borrower has a project starting on 1 January 2019 for which they take a loan of 12 months. Under the same RCF, they take another loan starting 1 July 2019. The tenor of the second loan is capped at 6 months, as there is only 6 months left of their initially approved facility.
How often do we asses the borrowers ability to repay?
At the beginning of each facility we perform due diligence to asses the borrowers ability to repay until the end of the tenor. Total exposure allowed within this facility is kept under the maximum limit originally approved.
Can a borrower have multiple facilities at once time?
Yes, but each would be underwritten separately, taking into consideration their total exposure. Multiple facilities could be approved if the borrower is running multiple independent projects.
Why is interest billing done on the 15th of each month and not when the borrower starts the loan?
This is to help borrowers remember a single interest payment date as they may do multiple draw-downs on their RCF line, which may occur on different start dates. The goal is to help reduce late payments due to operational constraints on the borrower’s end.
For investors, it is also easier to see if you have received payment, since interest payments should be paid by the 28th of every month.
This is very similar to a credit card billing payment cycle.
When is a RCF classified as default?
Similar to our BTL, 3 or more missed scheduled payments and the loan will be classed as defaulted (link to info on defaults).
Why are early repayment penalties waived for RCF?
As the RCF is meant to match the borrowers’ cash flows more closely, the absence of early repayment penalties should encourage repayment of the principal as and when the borrower has excess cash.