A swingline loan is a large, short-term financial loan whose purpose is to provide quick cash. It can be used to cover possible deficits from other bonds or obligations. On average within 14 days, it is also some form of revolving credit that can be accessed when needed.
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What is the difference between a swingline loan?
Although a swingline loan is similar in function to other lines of credit or demand-side loans, the funds provided through this type of loan may only be used to pay off outstanding debts and not for any other purpose such as asset acquisition or product research. In addition, this is different from a traditional line of credit that can be used for any purpose, including buying goods or services, as well as paying back debts.
Swingline loans can be availed by companies as well as individual borrowers. For private individuals, a swingline loan can be compared closely to a payday loan, which transfers the cash quickly, but often entails significantly higher interest rates than other forms of credit.
In companies, they are mostly used to cover temporary deficits when incoming payments / funds are unexpectedly delayed.
Example of a swingline loan application
You could compare a swingline loan to a traditional line of credit or demand loan, as a swingline loan company provides short term direct access to large amounts of cash. However, as already mentioned, the use of the funds is more restricted than by the other mechanisms. Swingline loans are best for use during times when normal delays in processing make other loans less ideal.
Similarity to Revolving Loan
A revolving loan is used when the company's funding needs are more variable. For example, if a company is expanding and needs working capital during this period and the growth phase is expected to exceed a year, an ongoing loan would be unsuitable as daily capital requirements will vary.
A variant of the revolving loan is the revolving standby loan facility, a specific type of which is known as the swingline facility. A swingline facility is generally viewed as a standby credit facility that is available for a same day draw with a short term, typically no more than seven or ten days.
Revolving loans involve a loan or line of credit that can be used repeatedly. Usually there is an upward limit. As long as the funds are repaid as agreed, they can be withdrawn at very short notice if necessary. Often, funds can arrive on the same day they are requested and the cycle of repayment and payout can continue as long as all loan terms are met and both parties keep the line open (C. Chance, 2014).