Swingline advances: Overview, definition, and example
What are swingline advances?
Swingline advances refer to short-term, often revolving loans provided by a lender to a borrower under a credit facility. These advances are typically used to meet temporary cash flow needs, such as working capital or urgent financial obligations, and are meant to be quickly accessible and repaid within a short period. Swingline advances are commonly offered as part of larger syndicated credit facilities, where a group of lenders contributes to the overall loan agreement, but one lender (usually the administrative agent) provides the swingline loan. They are typically used to cover temporary shortfalls in liquidity until more permanent financing is arranged.
Why are swingline advances important?
Swingline advances are important because they provide borrowers with immediate access to capital when they need it most. They offer a quick and flexible solution for covering short-term financing gaps, helping businesses maintain operations without disruption. These advances often have a lower interest rate than other short-term loans and can be repaid quickly, making them an attractive option for borrowers with a predictable cash flow cycle. For lenders, swingline advances can be an efficient way to provide short-term funding while earning interest.
Understanding swingline advances through an example
Let’s say a company has a credit facility that includes a swingline loan option of $1 million. The company needs immediate funds to pay for an urgent shipment of goods but is waiting for a large customer payment to clear. The company can draw $500,000 from the swingline advance to cover the payment, with the agreement that the amount will be paid back within 30 days once the customer payment is received.
In another example, a business might use a swingline advance to cover payroll expenses for the next two weeks while awaiting the settlement of accounts receivable. The company can quickly draw on the line, ensuring that employees are paid on time without waiting for payments to arrive, and then repay the advance as soon as the incoming payments are processed.
An example of a swingline advance clause
Here’s how a swingline advance clause might appear in a loan agreement:
“The Borrower may request swingline advances from the Lender under the Credit Facility in an aggregate amount not to exceed [$X] at any time. Each swingline advance shall be repayable on the earlier of [X] days or the next business day after the Borrower receives funds from its accounts receivable. Interest on swingline advances shall be charged at a rate of [X]% per annum.”
Conclusion
Swingline advances are an essential tool for businesses that need quick access to cash to cover short-term financial gaps. They offer a flexible and efficient solution to liquidity challenges, allowing companies to manage their working capital without delays. By offering short-term, low-interest loans, swingline advances ensure businesses can continue operations while waiting for longer-term financing or cash inflows. Understanding how to use swingline advances effectively helps businesses maintain financial stability and ensure they meet their short-term obligations on time.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.