Swingline loans: Overview, definition, and example
What is a swingline loan?
A swingline loan is a short-term, revolving loan that provides quick access to capital for a borrower. Typically, swingline loans are used by businesses or organizations to cover temporary cash flow needs, such as working capital or unexpected expenses, and are usually a part of a larger credit facility or syndicated loan agreement. The key feature of a swingline loan is that it allows the borrower to borrow funds on a short-term basis and pay them back quickly, often within a few weeks or months.
Swingline loans are often provided by a lender in addition to the primary credit line, acting as a bridge to cover immediate financing gaps before longer-term funding is secured or repaid.
Why are swingline loans important?
Swingline loans are important because they provide immediate access to capital, allowing borrowers to meet short-term liquidity needs without having to go through a lengthy approval process or take on longer-term debt. This makes them an essential tool for businesses that experience fluctuations in cash flow or need quick financing to cover unforeseen expenses.
For lenders, offering swingline loans is a way to provide flexible, short-term financing solutions while maintaining security as part of a larger credit facility. For borrowers, it ensures they can manage day-to-day operations without disruption, maintaining financial stability and operational continuity.
Understanding swingline loans through an example
Imagine a large company has a revolving credit facility but is facing a sudden cash crunch due to delayed customer payments. The company requests a swingline loan from the lender, which provides quick access to funds within a few days. The company uses the funds to pay suppliers, then repays the loan once the outstanding payments from customers are received.
In another example, a construction company is in the middle of a large project but needs immediate funding to purchase materials. The company draws on its swingline loan under its credit agreement to secure the necessary capital and repays the loan after the project milestone is completed and they receive payments from the client.
An example of a swingline loan clause
Here’s how a swingline loan clause might appear in a credit agreement:
“The Borrower may request swingline loans from the Lender under this Agreement up to an aggregate amount of $[amount], with each swingline loan to be made on a revolving basis, repayable on demand and bearing interest at the applicable interest rate. The Borrower agrees to repay each swingline loan in full within [X] days of the loan date.”
Conclusion
Swingline loans are a crucial tool for businesses needing quick access to capital to manage short-term cash flow issues. They provide flexibility and fast funding without the need for extensive paperwork or lengthy approval processes. For businesses, swingline loans ensure liquidity during operational disruptions or delays, while for lenders, they are a way to offer short-term financing within a larger credit facility. Clear swingline loan provisions in credit agreements ensure that both the borrower and lender understand the terms and conditions governing the short-term funding.
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.