# Understanding Swingline Loans: Short-term Financing for Businesses

![Business owner prepares documents to apply for a swingline loan.](https://www.investopedia.com/thmb/FQGTuNbGjB5JfzjTERZux4kUbHk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1388423569-e9a1f9bb5f7c432283e09f97350b5744.jpg)

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## What Is a Swingline Loan?

A swingline loan is a short-term funding solution provided by financial institutions that gives businesses or individuals access to cash to cover debt commitments. A swingline loan can be a sub-limit within a larger [credit facility](https://www.investopedia.com/terms/c/creditfacility.asp) or as part of a [syndicated](https://www.investopedia.com/terms/s/syndicatedloan.asp) credit line offered by a group of lenders. Swingline loans typically have short operating durations ranging from five to 15 days and provide fast liquidity, but they often carry higher [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) than traditional lines of credit, and the funds are limited to covering [debt](https://www.investopedia.com/terms/d/debt.asp) obligations.

### Key Takeaways

*   A swingline loan provides fast access to a large sum of cash for a brief period, typically 5 to 15 days.
*   This loan type is often used to cover temporary cash flow shortfalls and must be repaid quickly.
*   Swingline loans generally have higher interest rates compared to traditional lines of credit.
*   The funds from a swingline loan are typically limited to covering existing debt obligations.

## Mechanism and Process of Swingline Loans

Financial institutions make swingline loans to both businesses and individuals. For individuals, a swingline loan works like a [payday loan](https://www.investopedia.com/terms/p/payday-loans.asp), offering quick access to cash. However, fast access to credit comes at a cost in the form of a significantly higher interest rate than other forms of credit, such as bank-issued personal loans.

Companies can use swingline loans to cover temporary shortfalls in [cash flow](https://www.investopedia.com/terms/c/cashflow.asp), and in that sense, they are similar to other [lines of credit](https://www.investopedia.com/terms/l/lineofcredit.asp) in how they function. However, the funds provided by this type of loan are meant to be used only for paying down existing debts. In other words, the funds cannot be used to expand the business, acquire new assets, or invest in research and development.

The limitation of the use of funds differentiates swingline loans from traditional lines of credit, which can be used for almost any purpose, including buying goods and debt repayments.

> **Important**
>
> Swingline loans can be tapped or drawn down on the same day a request is made to the lender and be issued for smaller amounts than the existing credit facility.

A swingline loan can take the form of [revolving credit](https://www.investopedia.com/terms/r/revolvingcredit.asp), which is a line of credit that the borrower can repeatedly draw on and pay back. Though the loan normally has an upward limit, as long as the funds are paid back as agreed, they can be withdrawn on short notice. Often, borrowers can receive funds on the same day they are requested, and the cycle of [repayment](https://www.investopedia.com/terms/r/repayment.asp) and [withdrawal](https://www.investopedia.com/terms/w/withdrawal.asp) can continue as long as all the borrowing conditions are met and both parties choose to keep the line open.

Revolving credit lines, including swingline loans, can be closed at the discretion of either the borrower or the lender. Lenders can close any line of credit they find too risky. Swingline loans are best suited for use in cases where normal processing delays make other forms of loans impractical.

## Advantages and Disadvantages of Swingline Loans

As with any borrowing facility, each credit product has pros and cons. Company executives must weigh the benefits and drawbacks to determine whether a swingline loan is viable.

Pros

*   Swingline loans offer borrowers access to large sums of cash.  
    
*   Swingline loans can be accessed on very short notice.
    
*   Swingline loans aid companies with cash flow issues and help them keep debt payments current.
    

Cons

*   Swingline loans need to be repaid quickly.
    
*   Swingline loans typically have higher interest rates than standard credit lines.
    
*   Funds from swingline loans are usually restricted to paying debt obligations.
    

## What Is a Swingline Loan?

A swingline loan is a type of loan for business owners or individuals to access a large sum of credit for a brief period of time. They are often a sub-limit of a revolving line of credit.

## What Can I Use a Swingline Loan for?

Uses for swingline loans are typically limited to paying debt obligations.

## Can a Swingline Loan Be Used More Than Once?

Yes. The cycle of repayment and withdrawal on a swingline loan can continue indefinitely as long as all the borrowing conditions are met and neither party chooses to close the line.

## The Bottom Line

Swingline loans provide quick cash to cover debt commitments or short-term cash flow gaps, but must be repaid quickly, which can strain financial planning. However, these loans can come with significantly higher interest rates than other forms of credit and are limited to debt repayment rather than funding new investments or expansion. Borrowers should carefully weigh these factors and compare all available options before taking out a swingline loan.

> **Article Sources**
>
> 1.  Board of Governors of the Federal Reserve System, Finance and Economics Discussion Series (FEDS). “[Liquidity Provision and Co-insurance in Bank Syndicates](https://www.federalreserve.gov/econres/feds/files/2021060pap.pdf),” Page 8 (Page 9 of PDF).