At some point, every business reaches a moment when the bank account balance gets a little too close to zero at the end of the month, even though the company is performing well. Outstanding invoices, seasonal fluctuations, or a major project that needs to be financed upfront can all create temporary cash flow pressure. In these situations, a bank credit facility can be the right solution.
This article provides business owners, managing directors, and finance managers of Swiss SMEs with a practical overview.
What Is an Overdraft Facility?
An overdraft facility, also known as a revolving credit line or credit limit, is a flexible credit line linked to your business bank account. Unlike a traditional loan, you do not receive a fixed amount all at once. Instead, the bank grants you a borrowing limit that you can use at any time and in any amount up to the agreed maximum.
This is the key advantage: you only pay interest on the amount you actually use, not on the entire facility. If your credit limit is CHF 100,000 but you only use CHF 30,000, interest is charged only on the CHF 30,000.
Typical use cases include:
- Bridging payment term gaps (e.g. customers paying after 60 or 90 days while expenses must be paid immediately)
- Managing seasonal revenue fluctuations (construction, tourism, retail)
- Financing projects or large orders before payment is received
- Providing a buffer for unexpected expenses
An overdraft facility is not intended as a permanent source of financing but as a tool for covering temporary liquidity gaps. If a business continuously uses the full facility, it may be worth considering structural measures or discussing alternative financing solutions with the bank.
What Does an Overdraft Facility Cost?
The costs generally consist of two components:
1. Interest
Interest is charged on the amount actually used. Depending on the company’s creditworthiness, the bank relationship, and market conditions, Swiss business banks currently typically offer rates ranging between 2% and 4% per year.
The interest rate is usually variable and may be adjusted if market interest rates change.
2. Commitment Fee
In addition to interest, most banks charge a fee on the approved facility, often referred to as a commitment fee or facility fee. This is typically around 0.25% per quarter (1% per year) on the total approved limit.
Example: You have a credit facility of CHF 200,000 and use an average of CHF 90,000.
• Interest: 3% on CHF 90,000 = CHF 2,700 per year
• Commitment fee: 1% on CHF 200,000 = CHF 2,000 per year
• Total annual cost: CHF 4,700
Conclusion: Even if you do not fully use the facility, it is not free because of the commitment fee. It is therefore advisable to size the facility realistically: large enough to cover your needs, but not excessively high.
How Does the Bank Assess Your Credit Application?
Banks do not grant credit based on intuition. They systematically assess whether a business can reliably repay and manage the facility.
Cash Flow – The Most Important Factor
Free cash flow shows how much money the business generates from its operations after investments and before financing costs.
Banks use cash flow to evaluate debt servicing capacity: can the company pay interest and meet repayment obligations from its normal business activities?
Businesses that understand their cash flow can clearly explain when and why they need liquidity, which significantly increases credibility during the credit assessment process.
Equity and Balance Sheet Structure
Banks examine the relationship between equity and debt. A solid equity ratio, typically at least 20–30% in Switzerland, indicates financial stability.
Highly leveraged balance sheets or negative equity are usually major warning signs.
Profitability and EBITDA
Is the company profitable? How are revenue and margins developing?
Banks often use EBITDA (earnings before interest, taxes, depreciation and amortisation) to compare debt levels with earning power, typically through the Net Debt / EBITDA ratio.
Payment Behaviour and Account Management
Banks can review your account history. Frequent unauthorised overdrafts, returned payments, or irregular cash inflows can negatively affect the assessment.
Businesses planning to apply for a credit facility should ensure their account management is well organised beforehand.
Quality of Liquidity Planning
More and more banks require a short-term cash flow forecast, especially for larger facilities. A rolling 13-week liquidity plan is often considered best practice.
A realistic and well-prepared forecast demonstrates that management understands incoming and outgoing cash flows.
What Documents Will You Need?
Requirements vary depending on the requested facility amount and the existing banking relationship. In general, you should expect to provide:
- Annual financial statements for the past two to three years (balance sheet and profit and loss statement)
- Current interim financial statements if the application is made during the financial year
- Short-term cash flow forecast covering three to twelve months
- For larger amounts: a business plan or explanation of how the funds will be used
- Commercial register extract and authorised signatory information
- If required: collateral such as guarantees or pledged assets
Tip: Do not wait for the bank to request these documents. Arrive well prepared. Companies that understand and can explain their cash flow, liquidity planning, and financial statements make a far more professional impression on any credit committee.
Five Tips for a Successful Application
- Act early Do not wait until your account is already under pressure. Discuss financing needs with your bank before they become urgent.
- Clearly justify the requirement “I would like some extra flexibility” is rarely convincing., “My customers pay on average after 55 days while suppliers require payment after 30 days, creating a financing gap of CHF X” is much more persuasive.
- Size the facility realistically If the facility is too small, it will not solve the problem. If it is too large, commitment fees become unnecessarily expensive. A solid liquidity forecast helps determine the appropriate amount.
- Maintain the banking relationship Banks prefer lending to businesses they know. Regular updates, transparent communication, and a long-standing relationship can be as valuable as strong financial results.
- Obtain multiple offers Conditions vary from one bank to another. Seeking at least one alternative proposal can improve your negotiating position with your primary bank.
Enter the Bank Meeting Well Prepared
Preparation is the most important factor in a successful credit application. Businesses that understand their cash flow, identify liquidity gaps early, and present a credible financial forecast can engage with their bank on equal footing.
Tresio helps you achieve exactly that. With the liquidity planning module, you can monitor cash flows in real time, identify potential shortfalls early, and keep all relevant financial indicators at your fingertips. These are precisely the figures banks want to see during a credit assessment.
By the way, existing overdraft facilities can also be recorded in Tresio and included in your overall liquidity overview, allowing you to see exactly how much financial flexibility remains available, including unused credit lines.