Swingline Loan Definition

A swingline loan is a type of loan made by financial institutions that provides businesses or individuals with access to large amounts of cash. It is intended to be a short-term arrangement – operating for no more than five to 15 days on average – and can be treated as a form of revolving credit that the borrower may draw upon as needed, up to a predetermined limit.

The purpose of a swingline loan is to quickly provide money that can be used to cover debt obligations. While a swingline loan is similar to other lines of credit in how it functions, the funds provided by this type of loan are meant to be used only for paying down existing debts and not for other purposes, such as expanding a business, acquiring new assets or supporting research and development. This differs from a traditional line of credit that can be used for almost any purpose, including the purchase of goods or services and debt repayment.

Financial institutions make swingline loans to both businesses and individuals. For an individual, a swingline loan can serve a similar purpose as a payday loan, providing cash quickly but often at a significantly higher interest rate than other forms of credit, such as a personal loan from a bank or credit union. For businesses, swingline loans are most often used to cover temporary shortfalls in cash flow, such as when anticipated income has been unexpectedly delayed and creditors’ bills need to be paid.

[Important: Swingline loans can be a convenient way to get quick cash, but they may also carry high interest rates.]

A swingline loan can take the form of revolving credit, which is a line of credit that the borrower can drawn on, and pay back, repeatedly. Though the loan normally has an upward limit, as long as the funds are paid back as agreed they can be withdrawn as needed on very short notice. Often, borrowers can receive funds on the same day they request them, and the cycle of repayment and withdrawal can continue as long as all the conditions of borrowing are met and both parties choose to keep the line open. Revolving credit lines can be closed at the discretion of either the borrower or the lender. That allows lenders to close lines of credit that they consider to be too risky, or borrowers to close accounts they no longer need or intend to use.

Like a traditional line of credit or a demand loan, a swingline loan can give the borrower access to a large sum of cash. The advantage of a swingline loan is that the funds can typically be accessed on very short notice, compared to other types of loans.

The downside is that a swingline loan is often limited to a very short period of time, may charge a significantly higher interest rate that other loans, and is restricted in what borrowers can use the money for – specifically, paying off other, existing debts. For all of these reasons, swingline loans are best suited for use in cases where normal processing delays make other forms of loans impractical.