What Is a Swingline Loan?

Swingline Loans Explained in Less Than 5 Minutes

A business owner meets with a lender
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A swingline loan is a short-term loan that offers quick access to capital, typically used for debt obligations. Swingline loans are available to business owners and individuals and can function as revolving credit or a syndicated loan.

Let’s examine how swingline loans work and their pros and cons.

Definition and Examples of Swingline Loans

Swingline lenders offer short-term loans with fast funding that business owners typically use for debt obligations. Swingline loans are available to businesses and individuals. These loans are often syndicated. A syndicated loan occurs when multiple lenders contribute a portion of the total loan amount. When the loan is syndicated, one lender may advance, or “front,” the full loan amount. If the borrower defaults, the other lenders must reimburse the fronting lender for their portion of the debt.

  • Alternate name: Fronting facilities

Swingline loans provide quick access to capital in urgent situations. A business owner, for example, needs to make a loan installment but is waiting for payment from an outstanding invoice. A swingline loan can offer financial relief until the invoice is paid.

How Swingline Loans Work

Swingline loans are available in generous amounts and are typically used for debt obligations, such as settling outstanding loans. Swingline loans can be used for working capital, new facility expenses, and other business purposes, too. Since lenders can offer same-day funding, swingline loans are suitable options for borrowers who need capital quickly.

Jim Pendergast, senior vice president of altLine by The Southern Bank, told The Balance by email that swingline loans must be repaid quickly—typically within five to 15 days. They can also carry higher interest rates than other types of business funding.

Be conscious of the short repayment terms on a swingline loan. Unless you expect to quickly receive an influx of capital for repaying the debt, a swingline loan may not be a good option.

Swingline loans can function as revolving credit—amounts you repay are available again for reborrowing. The loans are often syndicated, but not always. “If a lending institution has enough funds or a business owner doesn’t require a large sum of money,” Pendergast said, “the lending institution can usually handle the loan themselves.”

Pendergast provided an example of how a business in the farming industry might use a swingline loan.

“A business owner in the farming industry might take out a swingline loan to cover the loan on his or her tractor before getting a paycheck,” he said. “Most of the time, the farming industry gets paid a lump sum at the end of their seasons, so if he or she needs a little extra money to hold him [or her] until payday, a swingline loan is a great option.”

Do I Need a Swingline Loan?

Businesses with extensive outstanding debt that urgently need capital are most likely to benefit from swingline loans. The extremely short repayment terms and high interest rates, however, are notable drawbacks. Pendergast recommended swingline loans as a last resort.

“If businesses and individuals can avoid it, they should try to use other methods of getting money quickly, such as invoice factoring and asset-based lending,” he said, “But if that’s not enough immediate cash, they should resort to swingline loans.”

Alternatives to Swingline Loans

If you need a large business loan but your needs are not urgent, SBA loans are an option. Depending on the loan program, you can secure generous amounts with long repayment terms. The SBA enforces a cap on interest rates, which helps keep costs affordable.

A business line of credit is another option. With it, small business owners can borrow amounts up to a predetermined credit limit. Interest applies only to the amount borrowed. Like swingline loans that function as revolving credit, the funds you pay off are available for reborrowing.

If your financing needs are low to moderate, then business credit cards provide flexible financing. Using one can build your business credit score over time, increasing your chances for approval on future loans. Also, you can enjoy incentives and rewards on qualified purchases.

Pros and Cons of Swingline Loans

Pros
  • Large loan amounts

  • Same-day funding

  • Can be used for various expenses

Cons
  • Short repayment terms

  • High interest rates

  • Risk losing your collateral if you default

Pros Explained

  • Large loan amounts: Swingline loans are available in generous loan amounts, which can be useful for large purchases or settling existing debt.
  • Same-day funding: Some swingline lenders can advance the funds within the same day of your request.
  • Can be used for various expenses: Depending on the lender, the use of proceeds can be used for debt obligations or general corporate costs.

Cons Explained

  • Short repayment terms: Business owners should expect to repay the full swingline loan amount within a few days or weeks.
  • High interest rates: High interest rates that increase costs can outweigh the advantages of a swingline loan.
  • Risk losing collateral: Some lenders may require collateral to secure the loan. Default on your payment and the lender can seize your collateral to recoup their loss.

How To Get a Swingline Loan

Business owners can go to large national banks to inquire about available swingline loan products. Pendergast recommended starting with your local bank. He listed online lenders as another option, but urged business owners to be wary of lenders' credentials and interest rates. Like many other types of loans, swingline lenders will assess your credit score, repayment history, and time in business. 

Key Takeaways

  • Swingline loans are short-term loans, used primarily for debt obligations.
  • Some swingline loans fund within the same day, which can be useful for business owners that need speedy financing.
  • Only business owners that can afford higher interest rates and repay the swingline loan’s full amount within the short term should consider this financing option.